UBS Thinks Oil Is In A Short Squeeze

UBS thinks that the oil market is in a short squeeze as the commodity is still trading in the green despite a very large reported crude inventory build two days ago. On March 2, the U.S. Energy Information Administration (EIA) said crude inventories rose by 10.4 million barrels to 518 million during the week to February 26, mainly driven by an increase in crude oil imports. The American Petroleum Institute said that U.S. crude stocks grew by 9.9 million barrels last week. Crude oil is up 0.84 percent at $34.86. In the last five days, oil prices were up 6 percent. According to UBS, positioning and sentiment is very biased to the short side/ underweight, and the move is also exacerbated by short gamma positions that have to cover at higher levels. Despite high oil inventories (and still building), most upstream producers have guided to lower than expected production as a result of lower capex. Meanwhile, ongoing hopes of a potential agreement between OPEC and non­OPEC members (seems unlikely but now a meeting set for March 20th is reviving some market hopes). A couple of supply issues like Kirkuk/Ceyhan pipeline damage taking longer to repair than expected and Farcados force majeure in Nigeria still an ongoing issue.