Speculators Raised Their Bet On Crude Oil To A New Record High
Axi | Feb 20, 2017 10:33
Originally published by AxiTrader h2 Key Takeaway/h2
Even though the price of crude oil has been trapped in a range for the past two months there is growing expectation that prices will break higher.
That's the unavoidable conclusion even the most casual observer would come to given the continued uptick in the CFTC's report of the net long positions held by the big speculative traders.
That's naturally a risk if prices start to fall, and a handbrake on rallies. But rthe range has been solid and would have to break to kick crude materially in either direction.
h2 What You Need To Know/h2508,456. That's the new record long for big speculative accounts in US Crude as reported by the CFTC on Friday.
That the longs keep climbing even though both WTI and Brent have been in a range for so long speaks volumes for the expectations traders hold of further price appreciation as OPEC's production cuts eventually bite.
It is also a factor of the massive increase in open interest in US crude oil futures as well.
Nymex Light Sweet Crude Open Interest and net non-commercial positions
Some traders I have spoken to say that the increase in net longs, which has been associated with an increase in total open interest, means that the record high in the net long position of accounts you would normally consider speculative is less dangerous or prone to liquidation should prices fall.
I understand that argument - net positions are certainly a function of open interest. But they have historically also been a function of the move in price. So the explosion in both OI and net positions since the OPEC deal also suggests that this is about expectations of an increase in price.
But, a question traders are asking themselves right now is whether the increase in the level of gasoline inventories to their highest level since 1990, not to mention the 24 million build in crude stocks in the past 2 weeks, speaks of trouble ahead for the crude oil rally so many oil market players expect.
Gasoline inventories are up because demand by US consumers fell to a 15 year low in January of just 8.2 million barrels a day.
That suggests the transmission mechanism between higher prices and reduced consumer demand in the US could be tighter and faster than OPEC and its partners in the current production freeze thought possible.
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And, if demand growth doesn't flow through to balance out the market as OPEC expected then the ability to drive prices sustainably into the $55/$60 region they seem to be targeting is in question. No wonder "sources" floated the idea of an extension to the production freeze last week.
Looking at the charts it is clear that WTI is caught in a range and has been for 2 months now.
A break of the low $55 region or below $50 would be needed to trigger a break and material move in either direction. IN the meantime short term traders are running the market.
Have a great day's trading.
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