Speculators turned a record number of bets on cheaper oil

Record liquidation

On 2 February, short positions in options and futures for WTI crude oil, i.e. a bet that oil will fall in price, decreased by the exchange NYMEX on 131 617 thousand contracts, or 67%, the largest decline over the last 10 years from the Commission on futures trading in the U.S. (CFTC) released on Friday evening. To close a short position, traders are buying futures and options, thereby pushing oil prices up.

Over the past 10 years, the situation when the number of short positions declined for seven consecutive weeks, was observed only twice: in September 2009 and in December 2012, CFTC figures show. But in that and in other case, the elimination of positions occurred not as rapidly as last week, and was accompanied by the oil rally.

For the week ended 22 March, market participants turned 25 435 thousand bets on cheaper oil, or 28%, bringing their number fell to a nine-month low — 64 431 thousand positions from the CFTC.

While rates on the rise in oil prices do not grow up symmetrically. During the reporting week, the number has only increased by 5 844 thousand, or 2%, to 300 thousand 261 positions. The number of net long positions amounted to 235 thousand 830 contracts. All in all since the beginning of February, the number of bets on the rise of oil prices even decreased on position 971.

Recovery stopped on March 23, a day after the price of WTI reached a four-month high at $is 41.45/barrel. Quotes sank 4% in new York after data about the increase of oil reserves in the U.S. for the previous week to the highest level since 1930. The index grew mainly at the expense of imports, which peaked in June 2013, according to the energy information administration of the U.S. Department of energy, three times exceeding the consensus forecast of analysts surveyed by Bloomberg.

“The rally was a result of the liquidation of positions by speculators who bet on the decline; the number of bets on the rise of oil prices is not particularly increased, says Bloomberg John Kilduff, a partner specializing in energy assets a new York hedge Fund Again Capital LLC. — This calls into question the continuation of the price rally”.

A favorable news background

News background is favorable for the recovery of oil prices. In the meeting in April, which will discuss the issue of freezing the production, will be attended by 15 or 16 oil-producing countries, said last week in Vienna, the Secretary-General of the Organization of countries-exporters of oil (OPEC) Abdullah al-Badri. Oil production in the U.S. fell to the lowest level since November 2014. The supply of oil in the country remains significant, with increased imports, and oil production Saudi Arabia and Russia, despite its frozen state, it remains at historically record levels.

“Even with freezing production is at record levels, while countries that did not take not this commitment, Iran and Libya, can offer the market a significant amount of oil,” — said Kilduff.

As of 13:00 MSK may futures for WTI crude oil added 0,79%, to $39,79 per barrel on the stock exchange in new York.