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December 4, 2017

OPEC agrees to prolong cuts, markets unsure about effect

OPEC agrees to prolong cuts, markets unsure about effect

Mixed sentiments

Hedge funds continue to step up with bullish pressure on oil. Before the meeting of OPEC + in Vienna, their short positions on black gold came close to the lowest levels ​​of last three years.

By November 28, hedge fund portfolios had 436,600 long and 40,1 thousand short positions. For a week, their longs increased by 26.8 thousand contracts, while short decreased by 25.9 thousand. Thus, the net long position on oil rose to 396.5 thousand contracts. Thus, only 17.2 thousand contracts are missing to the record.

Recall that the current record was set in February 2017, then the net wagers for oil growth was 413.6 thousand contracts. However, not everything is so straightforward. As we have noted before, “smart money» bet on oil fall. First, the short position of swap dealers has updated the absolute minimum – 752.4 thousand contracts, which is commensurate with 43.6 billion dollars.

Secondly, the spread between the “long” and “short” of the largest participants of the New York Mercantile Exchange continues to grow. By November 28, it had reached 3.3 percentage points, an increase of 10 basis points in a week. The last time that hedge funds took such an unambiguous position on oil, they were punished with a noticeable correction of prices. Then they completely closed their “longs”, which led to a drop in prices.

Now the situation is a little different – a lot of “shorts” are opened by swap dealers. If they start to close them, then this may lead to an acceleration in the growth of oil prices.

On Monday prices traded in red zone partly because of disappointing Baker Hughes report which showed rig count rose from 923 to 929 rigs.

At the perils of high debt

According to Morgan Stanley, investors in the bonds will sustain losses in 2018. And this will affect both high-quality and high-risk securities.

According to the base scenario, investors in bonds of American companies can lose on average from 1.4% to 2.9%, depending on the paper. According to the “bearish” scenario, losses can be even more: from 5.8% to 13.2%. A positive scenario, in turn, will give a return of 2.5% to 5.2%. That is, it turns out that in the opinion of the investment bank, the probability of a loss from investing in debt securities is higher than profits. The same situation is with European and Asian bonds.The “aging” business cycle, together with a reduction in stimulus measures from central banks, is a signal that it’s time to start withdrawing from debt instruments, according to Morgan Stanley.

Traditionally, the sale of bonds begins long before the collapse of the stock markets. First, these funds can come to the stock market, which will support the quotes of securities, but in the future, the exit from the assets will affect equity securities.

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