Roughly a month ago, chatter began regarding a theoretical meeting between top global oil producers to discuss a production freeze in order to bring stability to the globally oversupplied crude market. This very bullish information helped the market rally more than $10/bbl over the next three weeks in anticipation of an actual meeting, and on the hypothetical belief that a freeze would take place. After a few failed dates, with the latest slated for April 17th, the market has since come back off $4-$5/bbl. Additionally, Iran has made it clear that it will not join the discussion until its output reaches 4mbpd. Currently, Iran is running at slightly over 3.2mbpd and considers the freeze “laughable” until the country regains significant market share. Moreover, Iran’s involvement in the production freeze conversation is a pre-requisite for Saudi Arabia’s involvement. What a conundrum!
The above graphic taken from Bloomberg shows that hedge funds have increased bearish wagers for the first time in 8 weeks, an indication that they are betting against the market in belief that the market will weaken.
This morning we are witnessing doubt regarding whether the output freeze is actually going to happen. Continuing the trend from last week, WTI is currently down along with RBOB and heat. WTI is down $0.19 to $36.60 and RBOB and heat are trading down $0.0062 and $0.0130, respectively. Just when it seemed as if U.S. shale producers were becoming more resilient to low oil prices, Baker Hughes reported via its weekly rig count analysis that U.S. oil rigs were down 10 last week to 362, which is 440 below a year ago.
Food for thought: according to a comparison from Barchart.com, it seems as though WTI is following suit to a pattern that happened between 2008-2009. See the chart below and make your own inference.