Mikkel Rosenvold
2 days ago

Analyst: This Commodity Market Overly Pessimistic Right Now

OPEC's cohesion is faltering as Saudi Arabia shoulders the burden of supply cuts, creating short-term opportunities in the oil market. Rising freight rates and sluggish LNG inflows to Europe add further complexity to the energy sector's outlook.

"The positioning is very negative in energy markets, which looks like a decent contrarian signal to us. We continue to like energy (both oil and Nat Gas) versus metals into July," writes Ulrik Simmelholt from Steno Research.

OPEC's Cohesion Weakens Amid Supply Cuts

OPEC's cohesion is fracturing as Saudi Arabia bears the brunt of significant supply cuts to maintain oil prices, with other member countries reluctant to adjust their production baselines. This situation underscores the internal vulnerabilities within OPEC, challenging its ability to manage production levels effectively.

Short-Term Optimism Despite Market Reaction

Traders were surprised by the announcement of voluntary cuts being unwound starting in October 2024, with gradual supply increments continuing through September 2025. This has led to a short-term opportunity for oil prices, though medium-term price increases depend on the demand side. Despite negative sentiment, current positioning suggests a contrarian opportunity to stay long in energy markets.

Saudi Influence and Potential US Accord

Saudi Arabia’s heavy lifting in maintaining oil prices has supported other producers’ revenues. A potential security deal with the US, alongside increased oil supply, could be beneficial for Washington, especially in an election year. The possibility of a Riyadh Accord remains a potential game-changer.

Freight Rates and LNG Supply Issues

Freight rates continue to rise, driven by strong shipping volumes and geopolitical tensions. Meanwhile, LNG inflows to Europe are sluggish, impacted by shipping disruptions in the Red Sea, leading to slow storage fill rates. Despite adequate storage levels, the market pricing remains sensitive to marginal supply changes, supporting long positions in oil and European natural gas.

Conclusion

The current market conditions and OPEC dynamics present a complex landscape. While short-term opportunities exist in the energy sector, the medium-term outlook depends heavily on demand factors and geopolitical developments. The situation in the shipping markets and LNG supply also adds layers of uncertainty, reinforcing the need for strategic positioning in energy investments.

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