Oil prices are becoming dangerously overheated as speculators anticipate a rebalancing of supply and demand that has barely started, according to many oil analysts.
“Even as oil rallies, analysts have barely nudged up their price forecasts as they worry that crude’s recent gains might not be sustainable,” notes the Wall Street Journal (“Analysts just aren’t buying the oil rally”, April 28).
Many fear hedge funds are pushing up oil prices prematurely, which will lead to a renewed crash when the bubble bursts, as it did after the last big run-up in prices between January and May 2015.
Hedge funds and other money managers have accumulated a record net long position in Brent and WTI futures and options, betting on a further rise in prices equivalent to 656 million barrels of crude.
The net long position has surpassed previous peaks set this time last year (572 million barrels) and before that in June 2014 (621 million) as Islamic State fighters were racing across northern Iraq and just before prices started to crash.
Since the start of 2015, there has been a close correspondence between the accumulation and liquidation of hedge fund positions and short-term movements in oil prices.