Oil traders lose faith in
recent rally, position
for lower prices
Oil traders have ramped up their bets in the futures and options market that April's rally will run out of steam, as the outlook for demand weakens and with few clear signs of an end in sight to a supply glut.
While prices for front-month delivery Brent crude futures
rallied by as much as 20 percent this month, sparking hopes of an end to a rout that had previously pulled the market down by as much as 70 percent since 2014, data for contracts for later delivery looks much weaker.
rallied by as much as 20 percent this month, sparking hopes of an end to a rout that had previously pulled the market down by as much as 70 percent since 2014, data for contracts for later delivery looks much weaker.
The spread between Brent for delivery in December 2017 and those for delivery next month has halved since March 1 to just $4.40 per barrel, and in some cases even wiping out the contango, a price curve where contracts are more expensive going forward than for prompt delivery
U.S. bank Morgan Stanley said in a note to clients that it was "bearish oil prices" into the second half of the year and that "given producer hedging appetite into 2017 and the storage situation (full tanks), which requires at least some contango."
With no end in sight to a production glut and also increasing worries on the demand side, with the Organization of the Petroleum Exporting Countries (OPEC) cutting its consumption forecast this week, traders are positioning themselves for further price falls.
In the options arena, the number of put options tied to the July $30 strike price has increased by 150 percent, or 4,700 contracts, since mid-March, indicating a swell in bearish sentiment tied to that time frame.
Put options give a trader the opportunity to sell a product at a certain price, so a July put at $30 per barrel would make money if prices, currently around $43.50 per barrel, hit that level by summer.
