Analysts from Société Générale (EPA:SOGN) have warned that the U.S. benchmark for crude futures, West Texas Intermediate (WTI), could be susceptible to a near-term downturn, despite reaching its highest close since November 7 on Monday. The rapid rally, fueled by speculators, saw WTI close at $91.48 per barrel on the New York Mercantile Exchange, marking a significant 37% increase from its 2023 low of $66.74 on March 17.
Monday's announcement comes in the wake of an energy sector experiencing a bullish flow of $4 billion in the week ending Saturday. This was driven by inflows of $2.7 billion for WTI and $2.1 billion for Brent crude, according to the Société Générale team led by Benjamin Hoff, the global head of commodity research.
The analysts noted that money-manager positions in WTI have now reached their highest level since February 2022. Brent positions have also seen an uptick, reaching their highest level since March this year. Bullish flows are characterized as an increase in long building and short covering, or when long building surpasses short building, or when long liquidations are fewer than short coverings.
However, Société Générale's one-year overbought/oversold (OBOS) model indicates that WTI is "extremely overbought", suggesting it is highly susceptible to a one-year pullback. Brent crude has followed a similar trend but hasn't entered the overbought zone due to less long money-market positioning relative to total market open interest.
In related news, Saudi Arabia's decision to reduce oil production by 1 million barrels per day starting in July has bolstered the crude rally by heightening expectations of a supply deficit in the second half of the year. This production cut has been extended until year-end, and Russia has followed suit, reducing supplies by 300,000 barrels per day over the same period.
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