Being short crude oil still makes sense as concerns about global GDP growth meet massive production spikes in the US, and other major producers. Our view is that crude trades to $55 in the coming months.
The sell-off in Brent, in our humble view, is not over. After breaking below the 200 day moving average, we are seeing a possible acceleration to the downside as longs continue to cut positions and new shorts drive into the picture. Our survey, speaking to market participants, showed that some people are not as short as we first thought. We could see these new or increasing shorts attack price in the next 3 trading days – today being November 5.
Sentiment was shocked again, when the US Energy Information Administration an increase in US crude oil production to 11.35 million barrels per day in August – about 420,000 B/D higher than the previous month. Year-on-year growth in US crude oil production has average almost 1.5 million B/D in the first eight months of the year. The US continues to increase production while Russia and Saudi Arabia follow suit and these three producers now account for 40 percent of global supply – and it is rising.
Our downside target, now placed at $55 per barrel will likely trade in early 2019. We are constructive on shorts and suggest that it is not too late to establish a new, mid to long-term short position. Forget Iranian sanctions and other issues, supply will be a race by major producers. A race to the bottom 11