WTI: Bearish sentiment building for case below $50 handle

• Hedge funds are increasing their short WTI positions.
• Oil markets are seeing a steep surplus on the horizon.

The price of a barrel of oil continues to weaken following a number of fundamentals driving market sentiment. At the time of writing, West Texas Intermediate crude is trading down -0.53% on a spot basis, having travelled from a high of $54.02 to a low of $52.70 into the Wall Street close. As for WTI crude for November delivery, it lost 47 cents, or 0.9%, to end at $53.31 a barrel on the New York Mercantile Exchange and followed a 1.7% weekly decline.  

The Commitment of Traders reports show that hedge funds are increasing their short positions  and prices are on the verge of a two-week low as traders weigh the various risks associated with the market, stemming from a global slowdown, (on Friday, China’s Gross Domestic Product expanded at a 6% pace in the third quarter, the slowest in 27 years), trade wars, Brexit and the supply side of the equation, with reports that Russia on Sunday said that it failed to comply to its commitments in September to curb production.  

Supply-side challenges  

Additionally, Kuwait and Saudi Arabia seem to be looking to restart production in Khafji and Wafra oil fields that had been shut for four years which would add around 500,000 barrels a day in crude.

“Oil markets will likely see a steep surplus on the horizon, despite a potential rebound in growth in 2020, which presents a challenge for oil bulls despite tanker war fears, supply disruptions (both structural and temporary) and boiling geopolitical tensions. And, in this context, we remain concerned that the Saudis may have a hard time convincing other OPEC+ members to deepen their cuts when they meet in December,”

analysts at TD Securities explained.  

WTI levels

On an hourly basis, the price of WTI has battled to hold onto the 53 handle, with the price rising back above the 200-hour moving average and recovering from the rising support of which had formed at the start of October’s business. However, zooming out, the outlook is less bullish with the  daily GMMAs remaining  bearish and price  capped by the 21-day moving average.  Bears will seek a break below the 50 handle which will bring the prospects of a run down to the Nov 2018 lows at 49.39 again. the 46.90 level ahead of the 18th Dec lows down at 45.77 will then be in focus.