Hedge funds and other money managers cut their net long U.S. crude positions last week as prices plunged, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
Global oil prices are expected to teeter for the remainder of the year, as trade tensions and US crude inventories buildup continue to incur losses, yet output cut efforts by OPEC and its allies (OPEC+) would underpin the market, according to analysts at the world's leading investment banks.
Standoffs between the USA and key trading partners China and Mexico, plus new data showing larger than expected US stockpiles, yesterday blasted crude futures to their lowest levels in five months. They gained 1.7 per cent on Thursday.
Amid surging output, US commercial crude oil inventories surged by 6.8 million in week to May 31, to 483.26 million barrels, their highest levels since July 2017.
The move sent WTI sharply falling 3.09 USA dollars, while Brent crude dropping 2.38 dollars the following day, as Mexico is a major supplier of crude oil for the United States with lucrative cross-border energy trade.
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Oil prices were also supported by a rise in equity markets after a sharp slowdown in USA job growth raised hopes of an interest rate cut by the Federal Reserve.
Brent, the global benchmark for oil, fell below the key $60 per barrel support level Wednesday after a big surprise build in USA crude stockpiles, triggering questions on how much more production OPEC could cut to save a market plunging deeper into bear-market territory.
"Prices collapsed as the trade war extended beyond the United States and China", investment strategists at US Bank Wealth Management told clients earlier this week. Brent was down $1.31, or 2.1%, at $60.66 a barrel around 2:25 p.m. ET (1825 GMT).
Signs of slowing global economic activity have increased in recent months, fuelled by trade tensions between the United States and China, the world's top two energy consumers.
Both Brent and U.S. crude are in bear-market territory, having lost more than 20% from peaks reached in late April.
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Russian Federation is pitching in the biggest cuts among non-OPEC producers in the alliance. Crude inventories rose 6.8 million barrels, compared with analyst expectations for a 849,000-barrel drawdown, to their highest since July 2017 and about 6% above the five year average for this time of year.
Oil prices are up 16% so far this year thanks in part to the OPEC+ deal.
"Demand is weakening much more rapidly than we had expected", Morgan Stanley analysts said in a note on Wednesday.
"The weak economic data and widening trade conflict have made for a gloomier demand outlook".
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