One piece of data that has caught our eye recently was the news last week that net long positions in Crude Oil futures moved to a record high in the first half of March. The positions held by large speculators – typically hedge funds and proprietary traders moved up to 25% of the total open interest in Crude Oil futures according to research conducted by Bank of America Merrill Lynch.
The chart below shows how this long position has been steadily rising in magnitude since 2010 but has only recent broken above the 20% level and then continuing to run higher into what is described as a “crowded long zone”.
Geopolitics and other global macro factors are and always been intertwined with the energy markets and given the political uncertain that was present in the Ukraine (even before Mr Putin’s
Pre-emptive actions) it is perhaps not surprising that speculators would add to their positions. However, for now at least, the upside spike in oil prices with Nymex WTI Crude briefly trading up to $105.20 on March 3rd and the IPE’s Brent touching $112.39 appears to be the short term peak. Both contracts have beat a sharp retreat over the last several trading sessions as the Ukraine situation appears to be not worsening.
It’s fair to say that the snap back in prices probably wasn’t in the speculators game plan… Of course tensions may well rise again but when the boat is so lopsided, the old saying of “it’s in the price” begins to make its presence felt.
Against this background then what are the prospects for Crude Oil prices near term?
We can see from our second chart below Nymex cride has pulled back beneath its 50 day exponential moving average (the orange line) found at $99.71 and indeed is now hovering near its 200 day peer at 98.50 having printed down to $97.98 at one stage last week.
Bullls will be hoping for a decisive break back on the WTI contract above $100 to get things back on track but the uptrend on the chart that has been in place since mid January this year has been broken and for the moment the path of least resistance looks to be downward. That’s unlikley change without the intervenation of external factors such as those mentioned above.