Oil market 'oversold'? Analysts and traders pin crude's price plunge on demand, trading strategies

Oil prices defied the announcement of extended supply cuts from the OPEC+ alliance with brisk declines, with analysts and traders faulting certain trading strategies and the demand picture for the downturn.  

"There is a sentiment among traders of changing and repositioning their short versus their long positions, and that is how the price movement is actually giving the signals," energy consultant Abdulaziz Almoqbel told CNBC's Dan Murphy on Wednesday. In this case, short positions refer to activity in the futures markets that profits when prices decline, while their opposite long positions cash in when prices move higher over an extended period.

"I would say that what the market is going through currently is going into an oversold, technically oversold market that is pushing the prices down," he noted.

On Sunday, the Organization of the Petroleum Exporting Countries and its allies — collectively known as OPEC+ — decided to extend its existing formal cuts that were due to end this year, as well as a roughly 1.66 million-barrels-per-day voluntary reduction that also covered the period. These curbs will now carry through into the whole of 2025.

Several OPEC+ members also stretched out 2.2 million barrels per day of additional voluntary cuts from the second quarter of 2024 into the third one, with a view to gradually return these volumes to the market by September 2025 thereafter.

"I think there is a great deal of commodity trading advisors … as well as [algorithms], and the options market, which is a substantially large market of contracts that is influencing the latest price movement," Almoqbel added.

"If you look at every OPEC+ meeting that was held over the past 36 months, you will notice that following every meeting, there