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Hedge funds dispute OPEC+ ability to support oil prices

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The portfolio managers of hedge funds are allegedly becoming increasingly bearish about oil as they begin to doubt that the OPEC+ group will be able or willing to take further action to support oil prices.

In the six most significant petroleum options contracts and futures, the equivalent of some 58 million barrels was sold by money managers and hedge funds in the seven days that led up until December 5. According to regulatory and exchange records, in almost all of the last 11 weeks, fund managers have downgraded their petroleum positions, with them having reduced by 385 million barrels in total since September 19.

The OPEC+ group has made substantial production cuts to support crude oil prices, with Saudi Arabia and Russia making substantial additional cuts on a voluntary basis. Nevertheless, rising production in non-OPEC+ countries like the US has offset these interventions. ExxonMobil, the maker of the Mobil DTE hydraulic oil, has also started bringing projects online in Guyana after making a string of discoveries there.

The investment community now seems to be of the opinion that the OPEC+ group is unwilling or unable to make even deeper cuts to counter falling crude oil prices. After adjusting for inflation, crude oil prices are already below their long-term average, albeit only slightly.

While the situation may change, investors now think oil prices will fall lower. This may suit Saudi Arabia in the long-term by forcing US shale producers with higher breakeven costs to cut back their production rather than lose money.

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