En Español



Very usefull links



PW
Bookstore





News links

AP

AFP

Aljazeera

Dow Jones

Oil price

Reuters

Bloomberg

Views and News
from
Norway

 

 

 

 

Kemp: Will hedge funds full invest in oil or not?

 

 

 

 

LONDON
Petroleumworld.com 01 11 2017

*
Chart 1: tmsnrt.rs/2jkKeOm

* Chart 2: tmsnrt.rs/2jur904

Hedge funds amassed a record bullish position in crude oil futures and options by the end of last year, which helped drive crude prices sharply higher in the final six weeks of 2016.

Fund managers had accumulated a net long position in the three main futures and options contracts linked to Brent and West Texas Intermediate (WTI) equivalent to 796 million barrels by Dec. 27 ( tmsnrt.rs/2jkKeOm ).

The net position was almost double the 422 million barrels fund managers held on Nov. 15, according to an analysis of position data published by regulators and exchanges.

But most of the bullish positions were in place by the middle of December and since then there has been no further position building ( tmsnrt.rs/2jur904 ).

The first position reports of the new year show hedge funds actually cut their combined position in the three main contracts by 6 million barrels in the week to Jan. 3.

The question is whether hedge funds are now fully invested in crude or will continue to increase their positions in the weeks ahead.

Traders have had plenty of time to digest the output cuts announced by OPEC and non-OPEC producers in November and December.

Since just before the agreements, bullish long positions have been increased by around 170 million barrels while bearish short positions have been cut by about 230 million barrels.

By the end of 2016, fund managers held the fewest short positions in NYMEX WTI since oil prices started sliding in the summer of 2014.

There are no more short positions to be squeezed, while long positions have reached their highest recorded level ("OPEC convinces hedge fund managers but must now deliver", Reuters, Dec 19).

The turnaround from bearish to bullish has been the largest in history and helped push benchmark Brent prices up by one-third or nearly $15 per barrel ("Saudi Arabia engineers big shift in oil market sentiment", Reuters, Dec. 14).

But if all the shorts have been squeezed and hedge fund managers are fully invested, the lack of new money will remove one of the factors propelling prices higher.

Once prices stop rising, they are likely to correct lower, as traders employing momentum-based strategies liquidate at least some of their long positions to lock in profits.

The large concentration of hedge fund long positions has therefore introduced an element of downside risk into the short-term outlook for oil prices.

There may be more money waiting on the sidelines ready to be committed to bullish bets on oil in the near term.

Fundamentals could also surprise on the upside if oil supply falls more than expected or consumption accelerates.

Trading is usually quiet around the Christmas and New Year period, which could explain the lack of further long-position building since the middle of December.

But the first new short positions have already started to emerge in WTI as some traders anticipate at least a temporary pullback in prices.

Fund managers added 8 million barrels of fresh short positions in the main WTI contracts on the New York Mercantile Exchange and Intercontinental Exchange in the week to Jan. 3.

These were the first significant extra short positions added since early November, suggesting at least some fund managers think prices have peaked for now.



Story by John Kemp from Reuters. Editing by Dale Hudson.



Copyright© 1999-2017 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.

Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.

Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!

We invite all our readers to share with us
their views and comments about this article
.


Write to editor@petroleumworld.com


By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixel

 

 

 

 

 

 

TOP

Contact: editor@petroleumworld.com,

Editor & Publisher:P.Ohep F. /Producer - Publisher:P.Ohep F./
Contact Email: editor@petroleumworld.com

CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2016, Petroleumworld   / Elio Ohep Fitzgerald- All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.