Friday, 30 December 2016
Thursday, 29 December 2016
Speculators have been increasing their bets that oil prices will rise, setting up a punishing outcome if OPEC's production cuts disappoint, Again Capital founding partner John Kilduff said Thursday.
OPEC not only faces the challenge of getting its own members to deliver the promised cuts. It must also contend with potentially weaker demand in China and the threat of rebounding U.S. production, Kilduff said.
"The boat is loaded to one side in the market right now. Shorts have covered. People have piled in from the long side, waiting for these cutbacks to come through. If they don't, there's going to be big punishment in this market," he told CNBC's "Squawk Box."
Members of the Organization of the Petroleum Exporting Countries are scheduled to begin cutting production next week, and other producers have committed to reducing their output in the first half of 2017. The producers are aiming to reduce huge stockpiles of oil that built up after a boom in production caused in large part by a revolution in U.S. drilling.
Demand may not hold up
Kilduff acknowledged that crude demand could get a boost if President-elect Donald Trump and congressional Republicans deliver anticipated tax breaks and government stimulus that lead to economic growth at home and abroad.
However, he said he doesn't see that translating into higher demand in China, the world's second-largest oil consumer.
"That's the real demand center. That's the swing place, and I still see issues there," he said.
Kilduff, a longtime skeptic of OPEC's ability to deliver output cuts, has warned throughout the year that slowing economic growth in China and elsewhere in Asia is the oil market's Achilles' heel.
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