As hedge funds and money managers place record trades on a rally in oil, the price itself has fallen asleep.

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The shortest-term oil prices show that an oversupply endures. The nearest Brent and West Texas Intermediate contracts remain in a structure known as contango, which typically occurs when there is too much supply, depressing short-term prices. While the market remains in contango, it is costly for traders to hold on to oil contracts from one month to the next, diminishing the profits of those speculatively betting on rallies.

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There’s starting to be fatigue about the range we’ve been trading in

Money managers’ net-long position in WTI decreased by 20,540 futures and options to 359,387. Longs fell 1.8 percent, while shorts climbed 26 percent, the biggest gain in three months.

The shorts increased, which shows that there are investors willing to bet that the OPEC production cuts are fully priced into the market and that the oil bulls are vulnerable to bearish news

As they boost output, U.S. oil producers are hedging their price risk for this year and 2018. Producers’ short positions, protecting against a drop in prices, increased to 707,498 futures and options, the most since August 2007, according to the CFTC

Demand

In 2017, oil demand growth is assumed to remain healthy with potential growth estimated at 1.2 mb/d, well above the ten-year average of 1.0 mb/d

World oil demand growth in 2016 was revised higher by around 70 tb/d to now stand at 1.32 mb/d. The upward revision was primarily a reflection of better-than-expected data from OECD Europe and Asia Pacific with support coming from the petrochemical sector and colder-than-anticipated weather. As such, total global consumption in 2016 now stands at 94.62 mb/d.

For 2017, global oil demand growth was revised higher by around 35 tb/d. This was a result of colder weather conditions and healthy vehicle sales in OECD Europe, in addition to improve assumptions for petrochemical feedstock requirements in OECD Asia Pacific. World oil demand is now anticipated to increase by 1.19 mb/d to average 95.81 mb/d.

Supply

Preliminary data indicates that world oil supply in January 2017 fell by 1.29 mb/d m-o-m to average 95.82 mb/d. The decline was due to lower OPEC and non-OPEC oil production. Year-on-year, world oil supply declined by 0.46 mb/d.

The non-OPEC oil supply estimation for 2016 was revised up by 50 tb/d to average 57.20 mb/d, representing a contraction of 0.66 mb/d. The revision was mainly driven by higher-than-expected growth in 4Q16 in the US, Canada, Norway, Russia and China, which was partially offset by downward revisions in Kazakhstan, Australia and Malaysia. For 2017, the forecast for non-OPEC supply growth was revised up by 120 tb/d to average 57.44 mb/d, representing growth of 0.24 mb/d. The upward adjustments are due to increased drilling activity and investment in the US, leading to higher onshore crude oil and NGLs production.

OPEC NGLs production is forecast to grow by 0.15 mb/d in 2017 to average 6.24 mb/d, following growth of 0.15 mb/d in 2016. In January, OPEC crude oil production decreased by 890 tb/d, according to secondary sources, to average 32.14 mb/d.

Crude oil stocks have risen not only because of high imports but also because the demand for crude has dropped due to refineries that have begun their seasonal maintenance.

In the U.S., the storage glut has been getting worse instead, no surprise to me. OPEC’s production cuts have yet to surpass U.S. oil imports. But it’s only been four-and-one-half months since the “historic Algiers Accord.” It just needs more time, I suppose.

Russia is yet to show it’s sticking to the deal, but it had said it would be gradually cutting until June. Some seasonal maintenance downtime in the spring and the fact that it is reducing from post-Soviet record highs may conveniently help Russia claim the lowered output as genuine cuts.

Other non-OPEC producers are mostly relying on natural declines of fields to “contribute” to the cuts.

Will the other OPEC members try to catch up on the Saudi-led cuts and fulfill their pledges, or, as history has shown many times, will they leave Saudi Arabia to continue shouldering the cuts and boosting compliance rates?

Seasonally lower global demand in March and April may help both OPEC and non-OPEC producers with compliance in February and March, but further on, with summer approaching and demand rising, more producers will be tempted to cheat, some analysts reckon.

(…) the Saudis and the GCC will continue to cut output and push through the deal, because Saudi Arabia needs higher prices not only to fill in depleted government coffers, but also in preparation for the world’s biggest IPO ever, that of Saudi Aramco, slated for 2018

Iraqi crude shipments rose 3 percent in the first half of February even after OPEC’s second-biggest producer agreed to participate in global output cuts to mop up a glut that has put pressure on oil prices.

Shipments from the southern Iraqi port of Basra grew by 10 percent, while sales by the Kurdish Regional Government in the north of the country were up 13 percent, the data show

Iraq pledged to decrease production by 210,000 barrels a day from the 3.91 million it pumped in October

Iraq’s March oil exports may decline to a seven-month low of 3.01 million barrels a day, according to loading programs obtained by Bloomberg. Shipments typically slump in March because of weaker seasonal demand. This, together with maintenance at some of Iraq’s biggest fields, may help the producer meet its pledge under OPEC’s deal to restrict supply.