Given the fact that crude oil is essentially trading at the exact same level as it was to start of the past year of 2013 - near $92/barrel - it is quite remarkable to note the positioning of speculative money in this market.
Note that price had a strong rally during the 3rd quarter but then peaked out in early September and crashed from above the $110 level to its current $92. That is a fairly substantial move lower in price. Yet, look at the positioning of the speculators. They remain as net longs, every single category of them!
Here is a chart of the Commitment of Traders beginning at 2013 through this Friday's report. This is for Futures and Options Combined.
The hedge fund category did peak in their net long exposure around that same time frame but they are certainly not on the net short side of this market.
What is interesting to see is that as price has moved lower, the Producer/Merchant/User category, usually big commercial interests, have been net sellers. That tends to go against the usual pattern of commercial buying into descending markets with hedge fund or large spec selling.
It is obvious that the big shorts in this category are the swap dealers. That too is rather remarkable.
Quite frankly, I do not trade the crude oil market in size and thus am not that familiar with its inner workings as I am with the other markets that I specialize in. Yet, this is certainly odd as the trend following speculative money, money that one would tend to think would be on the side of the trend, which has been lower since September, has not been in this market. They clearly are net longs in a downtrending market. If anything the Hedge fund net long position is still very large. I do not know what to make of this.
I thought it might be tied to spread positions against the products but in checking their COT reports, the hedge funds are also net longs in both the Unleaded Gasoline markets and the Heating Oil market.
Hedge funds are net shorts on the WTI-Brent Spread but not to the degree to offset the totality of exposure to the WTI futures market.
Maybe if any of the readers here are specialists in the Crude market they can help us understand this. But for now, it is something that I am unable to explain.
I do recall that the opening of the pipeline out of Cushing to Port Arthur brought a lot of speculative money into the crude oil market as the belief was that pipeline would help alleviate the glut of supply that has been plaguing Cushing for some time. Yet, crude prices have already given up any gains tied to the news of that particular pipeline opening.
Fracking has given us large supplies of crude, a good deal of which is being refined into products and exported abroad but still the trend in the market has been down, in spite of speculators remaining as net longs.
I am going to be monitoring this situation as the weeks unfold to see I can make any sense out of this and see if there are any clues in here that we can glean as to what might be happening to this very key commodity. Under normal circumstances, an improving economy would lead to an increase in demand for energy which would be reflected in stronger demand for crude and its products but the chart is not reflecting that at the moment.
In today's price action the abysmal jobs number resulted in higher crude prices, a counterintuitive move that can be understood as a play on the Fed holding off on any tapering yet if the threat is one of deflation due to poor demand tied to weak payroll growth, then why the bounce higher?
Maybe we can figure this out; then again, maybe we can't.... That is why I prefer to trade markets that make some sense to me.
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