Hedge funds turned a record number of bets on cheaper oil

Hedge funds and other speculative investors liquidated bets on cheaper American oil at a record pace: for the week of March 8 on their short positions in options and futures for oil WTI at stock exchange NYMEX has decreased on 38 thousand 232 of the contract, or 25%, according to data of the Commission on futures trading in the U.S. (CFTC) released on Friday evening. Reduction of short positions on the 38.2 thousand — a record since 2006, when statistics starts. The previous record was recorded in April of 2015, when the week was closed 35 thousand short positions.

Rates on cheaper WTI down for the fifth consecutive week, during this time, the number of short speculative positions decreased by 43%, according to data from CFTC, WTI crude oil rose respectively by 22% (to 8 March). This week oil continued to rise, and on Friday, the WTI futures for delivery in April rose 1.7%, to $38,50 per barrel. Brent crude on the ICE stock exchange strengthened by 0.9% and closed at $40,39.

2015 this is the third distinct cycle, when traders first accumulate in excess of short positions on oil, and then mass-close them — the last one coincides with a price “rally”. With the January lows the price of WTI and Brent rose more than 40%.

The net long position of speculators in WTI (the difference between the number of long and short positions), showing the General attitude of traders increased over the week to 8 March is 29% — to the highest level since October 13. And for the first time since November 10 bets on the rise of oil prices has exceeded twice the rate of the depreciation (vs. 112 287 thousand thousand — a difference of 2.5 times).

Oil Brent, which is tied to pricing of the Russian Urals, the net long position of hedge funds is even higher: on 1 March (latest data) it reached 342 thousand futures and options, equivalent to 342 million barrels of oil — a record level. This suggests that speculators are betting on rising oil prices during 2016. This view is reinforced by Friday’s report from the International energy Agency (IEA), which States that oil production in the U.S. and in other countries outside OPEC starts to decline rapidly, and the market could finally reach the bottom.

However, the belief that oil will no longer fall, no. The investment Bank Goldman Sachs, which in September 2015 made a drop to $20/bbl., warns that in the coming weeks, prices may fall again. On Friday, the Bank lowered its forecast for average Brent crude oil price in 2016 from $45 to $39/bbl.