Oil prices inched up on Monday following a strong session on Friday, as financial traders increased their bets on higher prices amid a slowdown in US drilling, but analysts warned fundamentals remained weak.
Front-month Brent crude futures were trading atUSD 57.89 a barrel by 0356 GMT, up 2 cents since their last settlement, while US crude was up 14 cents at USD 51.78.
Many money investors are calling a bottom in oil prices, as speculators in US crude oil futures and options raised net long positions by some 52 million barrels in the week to April 7, data from the US Commodity Futures Trading Commission showed. That was the biggest one-week rise in bullish bets since 2011, according to CFTC data.
Reuters data shows that open interest in WTI strike options for USD 60, USD 70, USD 80, USD 90 per barrel on Nymex has risen steadily since the beginning of the year, showing that many traders are betting on rising prices. Even options volumes for USD 100 a barrel have increased by almost 20 percent this year.
"Speculative market participants appear to be calling for a bottom in oil prices," ANZ said in a note.
While prices may not fall much further, the bank said that a big price rally also remained unlikely.
"Although there are tentative signs of demand improving and rig counts fell to the lowest level since 2010, an ongoing global market surplus – driven by swelling US inventories (the biggest weekly jump since March 2001) and Saudi Arabian output to record high levels – should limit any potential rally."
Other analysts were even more cautious, warning that supply and demand fundamentals were deteriorating.
"Global oil fundamentals have been quite strong YTD (year-to-date), but we now see signs that physical markets are weakening. Global refining margins, while still healthy, have fallen materially.
With US runs set to ramp over the coming weeks, global turnarounds rising and product demand weakening seasonally, we expect product builds and pressure on global refining margins, which should diminish the appetite for non US crudes," Morgan Stanley said.
The bank said that production from exporters like Libya, Saudi Arabia and Russia as well as slowing demand for West African crude were also indicators of weak market fundamentals.
"All of these factors were a precursor to the price correction last summer," Morgan Stanley said, referring to the halving of oil prices since June last year as soaring output clashes with slowing demand.
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