Investors are betting on an oil price rise even though the chances OPEC nations will agree to a production cap are fading now that Iraq has joined those requesting an exemption.
OPEC will meet next month, and representatives have been scrambling to hammer out details of the proposed output freeze in time. Meanwhile, oil prices have risen to the highest in 2016, showing a 15 percent increase in the last month since Saudi Arabia, the largest oil producing country in the cartel, proposed the agreement.
Details of the deal are sketchy at the moment, but inside sources say recent discussion in Algiers ended with a framework in which OPEC would cut production to around 31.5 million barrels per day from the current 33 million.
“We are going long on oil and most investors will tell you the same right now,” said a key spokesperson at CITIC Tokyo International in a TV interview for Reuters. “We have no idea which countries are going to be involved or how much they will cut from their production but the general trend is to raise bets on options and futures for a continuation of oils price increase.”
It’s the fastest monthly pace that fund managers have added to their bets on an oil prise rise for any October on record according to reports from the U.S. Commodity Futures Trading Commission. Nearly 220,000 crude futures have changed hands this month alone as investors are bolstered by falling inventories.
“The oil landscape is certainly looking a lot better than many of the experts in the field have described it in recent months, it just seems to be more balanced now,” says Kevin Norrish, Barclays commodities chief analyst. “It’s looking more and more likely that crude oil price risk will trend towards the upside and that view will solidify if OPEC can reach some kind of agreement next month, even if it’s not the exact proposal that Saudi Arabia originally wanted.”
The position on crude has roughly doubled since Saudi Arabia put the proposition forward, with total net holdings of U.S. and Brent crude oil options and futures sitting at over 680,000 lots, which is equivalent to seven days of global oil usage.
Non-OPEC producers like Russia will also be invited to join the pact to freeze production next month.
