Expect near-term weakening in oil markets, says Credit Suisse
Speculative positions in oil are excessive and appear to have peaked, Credit Suisse said in its global equity strategy note on Wednesday.
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CS said that net long positions in oil have risen to all-time highs, and historically, once very elevated speculative positions start to roll over, the oil price has fallen significantly. It pointed out that the oil price fell by between 12% and 60% on the last four occasions that speculative positions rolled over from very high levels.
The broker noted that since 1860, bear markets in oil have lasted 11 to 28 years, not 7 years. “The recent strength in the dollar points to a weaker oil price, tactically,” said Credit Suisse, whose house view is that oil prices will weaken in the near-term before rising to $71 per barrel in the fourth quarter.
The broker said it would look to buy some of the areas that have suffered from the recent rise in the oil price, such as airlines, where it has ‘buy’ ratings on EasyJet and Ryanair.