OPEC blames hedge funds for recent decline in crude oil futures prices

The sharp decline in crude oil futures prices during the first week of October was driven by investors capitalising on profit-booking from the September rise, OPEC said in its latest report.

PHOTO: OPEC member state flags and world map. Getty Images

The front-month ICE Brent futures contract plunged from peak levels of $96.47/bbl seen on 27 September to $84.07/bbl on 5 October, and has since slid further down. At 13.00 GMT today it stood at $80.23/bbl.

This October price fall happened against a backdrop of concerns about the macroeconomic outlook and weaker-than-expected US consumer spending data for August. A strengthening dollar in October added downward pressure on oil prices, too, the Organization of the Petroleum Exporting Countries (OPEC) stated in its latest monthly market report.

The sell-off from hedge funds and money managers was further fuelled by sharp increases in US crude oil stocks in October, particularly in the first week of the month. Commercial US crude inventories grew by a massive 10.18 million bbls in that week, to 424.24 million bbls on 6 October, according to the US Energy Information Administration (EIA).

Concerns about slower global economic growth sparked worries that oil demand could have declined in October, OPEC said. Oil demand data for October is not yet out.

Some money managers and hedge funds reduced their bullish long positions in October. Despite this, OPEC maintains that global oil market fundamentals are robust, dismissing what it perceives as "exaggerated negative sentiments".

Robust US economic growth in the third quarter of this year, coupled with a recent upgrade of the Chinese economic growth projection for 2023 to 5.4% by the International Monetary Fund (IMF), are indeed strong economic indicators that are expected to bolster oil demand, it said.

Despite the prevailing negative sentiment around Chinese oil demand, there has been an increase in the country’s oil imports, OPEC found. According to China’s General Administration of Customs (GACC) data, China imported about 48.97 million mt (11.58 million b/d) of crude oil in October, up 7% from 45.74 million mt (11.17 million b/d) in September.

Rising tensions in the Middle East have lent support to declining crude values, it noted.

Overall, OPEC has kept its global oil demand growth outlook for 2024 unchanged at 2.25 million b/d.

By Nithin Chandran

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