Oil prices are lower for the seventh consecutive session. Light sweet crude prices had fallen 10.3% over the past two weeks, and with today’s losses are off another 1.6% already this week. There are two main considerations. The imbalance between supply and demand has not adjusted as much as expected, and the market positioning is extremely long, with many bank analysts still nursing bullish forecasts.  

The April light sweet contract is trading at its lowest level since the end of last November. At $47.20 would have retraced 61.8% of the rally since shortly after the US election.Below there the risk extends to $45-$46.Over, the slightly longer term, a return toward $40-$42 cannot be ruled out.  

The sell-off has been very sharp, and today could be the fifth successive session that prices close below the lower Bollinger Band (~$48.15 today). The last time this took place was early last November. After the fifth close below the lower Bollinger Band, the price of oil bounced for three-four sessions and then fell to new lows.  

OPEC’s cuts, if fully implemented would have brought the cartel’s output back to where it was in early 2016. There were several members exempt from output cuts, and they seem to take full advantage of their allowances, if not more so.It is offset the loss of around 13% (~100k barrels) of Libyan output due to conflict. At the same time, non-OPEC producers, including the US, Canada, Brazil, the North Sea and Russia have increased output by around one million barrels, according to reports.  

US crude inventories are at record levels. This not only reflects the increased US output, which is the highest in more than a year but also increased imports. The US Department of Energy expects next month’s output to rise by nearly 110k barrels a day, which would lift US output to near 9.2 mln barrels a day. The Bloomberg survey found a median expectation of another three million barrel build last week when the EIA reports tomorrow. The US rig count has steadily increased and now is at its highest level since September 2015. Moreover, US shale production costs are estimated to have fallen by around 40% over the past three years.