The latest data recorded a very sharp decline in long, speculative crude positions, but markets were concerned that there would be a further liquidation given the sharp decline in spot prices and fears over rising US production.
Oil prices came under further pressure in US trading on Friday with WTI dipping to lows below $48.60 p/b before a slight recovery to $48.80.
Crude was unable to gain any support from a weaker dollar tone as underlying sentiment remained weak.
The latest Baker Hughes data recorded a further increase in the number of oil rigs to 631 in the latest week from 617 previously with the total close to 100% above the 2016 lows. This was the 9th successive increase in rigs and the highest figure since September 2015 which maintained expectations that US oil production would continue to increase in the short term.
The COT data released late on Friday recorded a sharp decline in long, non-commercial positions in the latest week with a net drop in long positions on NYMEX of over 86,000 contracts which was the sharpest weekly decline on record. A large drop in long positions was compounded by a doubling in short positions.
Although there is still a substantial net long balance, the overall positioning is now notably less extreme with the long/short ration declining to 4 from 11.5 three weeks ago.
There was, however, a further increase in hedging by producers and the increase in US shale production will tend to amplify selling over the next few weeks which will also increase the risk of a further shake-out in positions.
Prices dipped lower in Asia on Monday with a break below $48.50 triggering another round of stops and prices were unable to regain this level. Another bout of selling pushed WTI prices to fresh 3-month lows just below the $48.00 p/b level in early Europe as Brent declined to near $51.00. There was consolidation just above these levels at the US open.
Concern surrounding a potential increase in Libyan production was another significant factor in undermining confidence. The IEA also commented that it expected a further boom in US production.
Overall sentiment will remain fragile in the short term with US supply issues remaining important.