Oil bulls lack conviction about sustainability of higher prices

Oil prices

The sentiment among oil investors regarding the sustainability of higher prices remains uncertain, as hedge funds and money managers exhibit mixed behavior in the petroleum market. While exposure to Brent increased amidst escalating conflict in the Middle East, doubts persist about the longevity of elevated prices. Significant selling occurred across various petroleum contracts, including Nymex and ICE WTI, U.S. gasoline and diesel, and European gas oil, indicating apprehension among investors. Despite bullish sentiments towards Brent, concerns over WTI's prospects led to increased short selling, suggesting a lack of conviction in its future performance. Additionally, optimism regarding refined fuels has waned, reflecting a shift in investor sentiment. While geopolitical tensions and production constraints pose upside risks, factors such as non-Opec output growth, inflation, and economic uncertainties weigh on the outlook. Similarly, in the U.S. natural gas market, investor sentiment has turned bearish due to rising inventory levels and subdued demand. Despite efforts to curtail drilling, inventory surpluses persist, exerting downward pressure on prices. The warmest winter on record has further dampened consumption, exacerbating the oversupply situation. As a result, gas prices remain near multi-decade lows, with little indication of an imminent rebound. Overall, the oil and gas markets continue to navigate a complex landscape characterized by geopolitical tensions, supply dynamics, and macroeconomic factors, shaping investor sentiment and price trajectories.