The decision by the OPEC+ group to defer planned increases in supply has not been enough to stop the downward trend in supply risk premia, according to TDS Senior Commodity Strategist Daniel Ghali. This means that the pressure remains on crude oil prices, with the erosion of supply risks and a decline in demand sentiment causing prices to continue falling.
Ghali’s return decomposition framework indicates that supply risks from energy market pricing are diminishing. Despite this, he notes that historically, it takes a few days for the implications of OPEC+ decisions to impact market pricing. This suggests that the current trends could reverse in the near future. While there may be some modest buying activity in WTI crude from CTA trend followers, there are no clear signs that OPEC’s decision has stopped the decline in supply risk premia at this time.
Overall, the decision by the OPEC+ group to delay supply increases has not had the desired effect on crude oil prices, with supply risk premia continuing to decrease. This has created pressure on prices, with demand sentiment also playing a role in driving prices downwards. While there is a possibility that market trends could reverse soon, there is currently no clear indication that this will happen in the short term.
Despite the ongoing pressure on crude oil prices, there is some optimism that the market trends could change in the near future. Historically, OPEC+ decisions have taken a few days to impact pricing, so there is a chance that the current downward trend could reverse course. While there may be some buying activity in WTI crude from CTA trend followers, it is uncertain whether this will be enough to halt the decline in supply risk premia at this time.
In conclusion, the decision by the OPEC+ group to defer planned supply increases has not stopped the bleeding in supply risk premia for crude oil prices. The pressure remains on prices, with supply risks diminishing and demand sentiment contributing to the downward trend. While there is a possibility of a reversal in the near future, there are currently no clear signs that this will happen. Investors and traders will need to closely monitor market trends to determine the future direction of crude oil prices.
