On July the 4th, ATB Holdings released analysis of the current state of Brent Oil. According to the firm, the recent hike in short selling contracts for Brent Oil has climbed to a six year high. Short selling must be bought backed before the future contract ends. Some traders believe there will be a significant climb in oil prices, thanks to profit taking and stop losses set to protect the investor’s position. Last week, Brent Oil was pushed to $44.35, due to fundamental data from the United States, an unexpected increase in US inventories, and bearish technical indicators. This was the lowest price for Brent Oil in the past six months.
The Head of Corporate Derivatives at ATB Holdings, Daniel Holland, believes the market could soon experience a trend reversal. The number of short contracts is high and the sentiment has turned very negative. These are signs that a reversal could happen as the market attempts to rebalance its. Generally, these types of reversals are short lived, since supply and demand remain primarily responsible for determining the price trends at any given time.
ATB Holdings also points out that various funds have built large short positions during the past few weeks. Should these funds decide to cover their shorts, the short-term Brent Oil prices could be sent climbing higher. Funds make their decisions to buy and sell based on technical analysis. A similar scenario took place last year when OPEC entered into an agreement to limit oil production in November of 2016. Many speculators and investors covered a large portion of their shorts in response to the announcement. In return, this wiped out more than 114 million barrels of short contracts in a single moth.
It also sent Brent prices up $12 during the same period. ATB Holdings points out that this time, the bears benefited from fundamental and technical indicators. The increased American inventories and bearish technical signals helped to increase short selling and pushing the price further down. ATB Holding’s Director of Investment Management Division, Charles Sutton, believes the price will increase as the short selling positions are cleared. “the market players got carried over with the short selling, some of these positions will be cleared with the price increase.”
However, one advisor with ATB Holdings, Andrew Haywad, doesn’t believe fundamentals are pointing upward. Instead, he suggests the rising prices could be a good opportunity to sell. You can read further comments from ATB Holdings by clicking here.