By Barani Krishnan
Investing.com - The rally in oil seems stuck with nowhere to go.
U.S. West Texas Intermediate crude and U.K. Brent oil barely moved in Monday's trade as recession worries gripped the market a week after what seemed to be unstoppable momentum for oil bulls from an OPEC vowing not to stop production cuts until it had drained the market of excessive supply.
WTI settled down 22 cents, or 0.4%, at $58.82 per barrel.
Brent, the global oil benchmark, rose 13 cents, or 0.2%, to $66.88.
The net-long position held by hedge funds and other money managers in U.S. oil rose last week to its largest level since the end of August, a sign that prices could continue climbing over the next six months helped by OPEC production cuts and virtual halt in Venezuelan crude exports to the United States.
Yet some pointed to active producer hedging after WTI's climb last week to $60 per barrel, a move that on paper could be a strong neutralizer to the global supply draining efforts of OPEC.
"The market is getting longer from the CTAs and perhaps some oil-related buying, but it’s just not enough to offset the selling in the market," Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C., said.
Global financial markets were mired in illiquid trading on Monday after weak factory data from the United States, Europe and Japan triggered a selloff in U.S. equities on Friday and also led to the inversion of Treasury yield curve for the first time since 2007.
Yields on U.S. 10-year Treasury yields rose slightly on Monday after data showed German business morale improved unexpectedly in March, but spreads between U.S. three-month and 10-year Treasury yields modestly inverted as the session progressed.
"The further flattening of the Treasury yield curve as a signal of recession on the way, (and) means global oil demand could be slowing,” said Dominick Chirichella, director of risk and trading for oil at the Energy Management Institute in New York,
Despite Monday's anemic trade, WTI was on track to end March up more than 3%, while Brent showed a gain of over 1%. Year to date, the U.S crude benchmark has a 29% gain, while its U.K. peer is up almost 24%.
OPEC cuts aside, huge back-to-back declines of nearly 14 million barrels in U.S. crude stocks over the past two weeks have provided the oil markets a big sentiment boost. Some, however, said the recession worries may still have a bigger impact on the market.
"U.S. inventories are the key to finding new buying, but I struggle to think these draws are going to continue with the balancing item so far out whack," Shelton added.
Petromatrix, an energy consultancy in Zug, Switzerland, agreed, saying: "Crude oil futures are trading the tightening of the weekly (supply) report(s), but holding to those gains has proved to be difficult."