Energy Markets Review: Commerzbank

Oil prices are continuing the downswing they began last week. Brent dropped to $52.5 per barrel yesterday, its lowest level since the beginning of February. WTI fell to below $43 per barrel to hit a six-year low. 

The overnight increase in the price of Brent to $54 per barrel was due above all to the contract rollover because the new front-month forward contract due in May was trading half a US dollar higher than the expired April contract. 

The May contract already fell again this morning. Financial investors are withdrawing from the oilmarket and are thus likely to be exacerbating the price slide. 

Speculative net long positions in WTI were already reduced in the last three weeks. In Brent, they declined for the first time in five weeks during the week to 10 March, having soared by more than 50% in the preceding four weeks. 

By contrast, the decrease by 4,700 contracts was comparatively minor. Furthermore, it was due solely to the increase in short positions. At more than 300,000 contracts, long positions achieved a new record level, meaning that the potential for correction has probably increased rather than decreased.

Parliamentary elections are taking place in Israel today. A change of government would increase the prospect of an agreement in the nuclear dispute with Iran, because the incumbent Prime Minister Netanyahu was opposed to any such deal. 

If sanctions were to be lifted, up to 1 million barrels per day of additional oil could reach the market from Iran in the second half of the year, making it more difficult for prices to recover.