Speculative longs in Brent crude reached as extreme levels

Ole Hansen: This will eventually cease to build as production slows

Baku. 8 May. REPORT.AZ/ 'Crude oil, both WTI and Brent crude were the two best performing commodities this April as they headed for the biggest monthly gains since May 2009. Signs of slowing US production combined with geopolitical worries related to Yemen helped drive prices higher. US inventories remain very elevated just below 500m barrels while OPEC countries, as well as Russia, continue to pump at full speed. A sharp recovery at this stage will be counterproductive as it could trigger an earlier than expected revival of the US shale oil industry', Report informs Head of Commodity Strategy of Saxo Bank, Ole Hansen says.

Speculative longs, especially in Brent crude, have reached what can only be described as extreme levels and this will increasingly be posing a downside risk to markets. Momentum is your friend and for now momentum is telling us the market can go higher, but be aware of the bullish bets which could unravel the positive mood should the sentiment or technical outlook suddenly change.

The latest boost to crude oil prices was provided by the weekly US inventory report which showed the first stockpile reduction at Cushing, Oklahoma since last November. This was taken as a further sign that inventories countrywide will eventually cease to build as production slows.

While US production may finally be slowing the same cannot be said for Opec, where April production, according to a Reuters survey, climbed to its highest since 2012. The jump was driven by near-record supplies from Iraq and Saudi Arabia as the cartel's biggest producers are jostling for position ahead of a potential return of Iranian oil later this year. At 31m barrels per day the cartel is currently producing about 1.5m barrels per day more than what is estimated to be required during this time.

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