Hedgies Have Never Been More Bullish On Oil As Shorts Crushed For 5th Time

Despite extending gains overnight on the heels of Libya's planned production boost stalling, oil prices are sinking back into the red this morning as yet another major short-squeeze appears to have run its course for now.

As Bloomberg reports, oil extended gains (over $53 a barrel for Feb 2017 WTI) overnight as a planned production boost from Libya stalled amid continuing tension in the OPEC member that’s exempt from output cuts.

Libyan oil-facility guards backtracked on an agreement to allow supply to flow from the El Feel and Sharara fields, two of the country’s biggest, according to an engineer that operates El Feel.

 

A group of Libyan guards prevented the flow of oil by pipeline, Khaled Hadloul, an engineer at Mellitah Oil & Gas, which operates El Feel, said by phone. The Repsol SA-operated Sharara field is also yet to restart because both fields feed into the same pipeline network, Hadloul said.

But prices are sliding back into the red this morning as the dollar gathers steam once again...

 

These moves are happening as hedge funds increased their bets on higher prices to bet record highs...

 

As they slashed shorts by 30% to the lowest level since May - ending the fifth spectacular short-squeeze in the last 2 years...

 

Analysts are piling up to get more bullish on the oil complex...

JPMorgan analyst David Martin

  • Increases Brent 2017 to $58.25/bbl and WTI to $56.25/bbl and says consensus expectations on scale and length of OPEC cuts appear too cautious
  • Increases concentrated in 1Q-3Q, with forecasts rising by $5/bbl on avg
  • Lowers 4Q 2017 Brent forecast to $55/bbl and 2017 year-end forecast to $53/bbl as remains concerned that cheating will undermine agreement at some point in 2H17

BofAML commodity strategist Francisco Blanch

  • Market may move into deficit as soon as January
  • High inventories should keep front-month contracts depressed until overhang is partly cleared in 2H17
  • Possible surge in passive investor flows next year could dampen a shift to backwardation in front to 3rd month oil spreads

Goldman Sachs analysts incl. Damien Courvalin and Huan Wei

  • U.S. output to decline 640k b/d on average in 2016
  • Annual average U.S. production will drop 60k b/d y/y in 2017 assuming U.S. rig count stays at current levels