Tuesday, August 8, 2017

Investors Have Been Betting Big That Oil Will Rise. This Is How It May Go Wrong

By Barbara Kollmeyer
MarketWatch
August 8, 2017

Speculative investors have been scooping up oil lately, a frenzy the likes of which hasn’t been seen for months, and some say it could all end badly.

So-called net long positions for WTI oil CLU7, -0.20% in the latest week—in other words investors betting that oil prices will rise—climbed a further 53,019 contracts in the week of Aug. 1, according to Commerzbank analysts citing data from the U.S. Commodity Futures Trading Commission and Bloomberg. That takes the level to just under 289,879 for the week, the highest since mid-April.

And they have in fact almost tripled, versus a low from five weeks ago, wrote the analysts. Check out the attached chart showing how demand has picked up:



Over the past six weeks, a nearly 20% rise in oil prices has been supported by these speculative investors, said the Commerzbank analysts.

A sharp drop in oil inventories has caused a shift in market sentiment, as it is “seen by many, market participants as a sign of market rebalancing,” said Carsten Fritsch, analyst at Commerzbank, in emailed comments. But he added that those hopes are probably “not warranted.”

“The inventory draw is mainly seasonal and is unlikely to last when demand cools off in September after the summer driving season and during refinery maintenance. The sharp depreciation of the US dollar also played a role in driving the oil price up,” said Fritsch.

Oil futures booked a slight weekly loss for the first week of August, but posted a 9.9% gain for July, the biggest monthly percentage gain since April 2016. Crude fell Monday as investors watched the outcome of a meeting of the Organization of the Petroleum Exporting Countries, and on concerns that major oil producers commitment to output caps may be wavering.


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