Oil Prices Expected to Recover as Bearish Bets Prove ‘Overly Pessimistic’: JPM

The recent increase in oil prices on Monday has sparked optimism regarding a recovery, as UBS suggests that current bearish sentiments may be excessively negative. There’s an expectation that summer demand could significantly impact global oil supplies.

According to the latest Commitment of Traders report for the week ending June 4, the net length in oil markets—defined as the difference between long and short positions—has dropped to just 50 million barrels, the lowest level observed since 2011. Conversely, short positions are nearing record highs.

UBS highlighted in a Monday note that this pessimism might be overstated, estimating that the net length is likely higher now. They anticipate that oil demand will increase by between 2 to 2.5 million barrels per day from April to August.

Concerns about oversupply have contributed to the prevailing bearish outlook on oil prices. This sentiment has been exacerbated by OPEC and its allies, collectively referred to as OPEC+, announcing plans to gradually reduce their production cuts of 2.2 million barrels per day later this year.

However, the demand for oil is not as weak as previously feared. There is expected to be a delay in the rate of supply growth due to ongoing OPEC cuts, which are anticipated to be less extensive than the current reductions in place. UBS states, “[W]e expect supply growth to lag as OPEC+’s production cut extension and growth outside the group should be modest.”