Hedge Funds Have Never Been This Long Crude Oil

Tyler Durden's picture

Despite record gluts in crude and gasoline amid resurgent US crude production, hedge funds boosted their net long position in WTI last week to a new record high.

The International Energy Agency said the group has achieved a record 90 percent initial compliance with an output accord, and as Bloomberg notes, it seems hedge funds are loving te fact that OPEC has never been more serious.

After some hesitation in the previous week, it was the fifth time this year that they’ve upped their bullish stance, and the third they took it to a new record.

In fact, as Bloomberg reports, for the first time ever, hedge funds hold more than a billion barrels of bets that crude oil prices will rally.

“The OPEC cuts so far are a little bigger than expected and there’s no sign that they are backing down,” Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. “This feeds into expectations that we’re heading into a balanced market.”

“Money managers have confidence that there will be either a further, ongoing investor flow that will keep prices elevated, OPEC cuts will continue and start reducing inventories, or increased demand will reduce supply in the second half of the year,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by telephone.

But as Raoul Pal detailed previously, look at the term structure of crude oil. We've got a fairly steep contango for a few months but then we see backwardation in the belly of the curve. So apparently, we're not going to need storage after June or July or so it's going to be a non-issue those tanks are going to be empty. I'm not buying that story.


So I do see a curve steepener trade that is-- I actually just bought a bunch of spreads short June, long December. Just thinking that at that point there was backwardation in that segment of the curve I don't think that's going to stay in backwardation I think by the time June gets here we're going to be looking at contango again.

So that's one trade that I see the other one I'm kind of waiting for and I’m lining up quite a few dominoes here is I think that Trump is going to get tough with ISIS very quickly after entering office and I wouldn't be surprised if there's some kind of ultimatum, ISIS knock it off or else, and I think there's so much hysteria right now politically there's so many people with such polarized viewpoints that you could easily see a an overreaction, a massive upward spike in oil prices because a lot of paranoid people are convinced that Donald Trump is going to launch nuclear weapons on ISIS or something.

I don't think that'll actually happen. If there was a $25 up spike in oil prices from here I would look at that as a very very ripe shorting opportunity because I don't think prices can go $25 higher and stay there because the shale revolution will be restarted, the bakken will be relaunched and those prices will come back down.

So I don't want to bet on the up spike I'm not convinced it will happen if it does happen I'll definitely bet on the mean reversion. Frankly that's all I can really see at this point for trades.

So to add on about oil. Oil is interesting to me because if you remember I made a very public forecast on oil way back in 2015 I think it was, when I said look I think oil is going to fall to $30 dollars a barrel it was like at 110 at the time and luckily it got there these things don’t always work out that way but it did and the reason I had a lot of faith was twofold one the dollar was going up and I thought it would go much higher which obviously is the normal nature of oil prices so that helps that.

The other thing was speculative position in crude oil was all time high in fact if I took the trend going back from the early 80's it was seven standard deviations above that trend and well over three standard deviations maybe four standard deviations from the trend in the last 20 years or 15 years. So, the position was huge.

If I look at it now again, I'm looking again at my Bloomberg screen as we speak it's equal to where it was. So, it came, all the way back down, it's got all the way back up. So, the market is wildly gigantically bullish on crude oil and that is something that starts looking like an opportunity to me on the short side.

Probably best just to ignore the fact that U.S. crude inventories climbed to 518.1 million barrels in the week ended Feb. 10, the highest level in weekly data going back to 1982, according to the Energy Information Administration.

Production in the lower 48 states rose to 8.47 million barrels a day during the same period, the highest since April.


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johngaltfla's picture

And since Hedge Funds are the new "Bear Stearns" I would short the ever loving fuck out of every one of their positions all day long.

GUS100CORRINA's picture


Where in the HELL are they going to store the OIL ... Off Shore Tankers are Full, Cushing is Full and all countries using oil are already oversupplied.

I guess they will have to DUMP the OIL into the PACIFIC OCEAN. The OIL should be a good mix with all that FUKUSHIMA radioactive biohazard waste now eminating from Japan.


Oracle of Kypseli's picture

Maybe they got the memo that war is coming, or, the banks are pushing it so that the debt of the rigs will be paid first and then bang down we go.

Pick a side.

This family is moderately short.

johngaltfla's picture

There will be no war in the next 18 months.

There will be no strike on Iran.

The US military is not ready yet.

Carry on.

la0508's picture

What do they need to do to get ready?

Dragon HAwk's picture

Derivative,  Meet Storage Tank

Umh's picture

Are they betting on war?

Uskatex's picture

Maybe they know something we don't know.

Something that will soon happen in the Middle East.

nomorebuyins's picture

1 billion barrels, that's a lotta oil.

nomorebuyins's picture

Hedgies are hurting so much, looks like a desperate last ditch effort before they pull the plug. Small run up will get them to double up, then they will get crushed.

g'kar's picture

Good thing there is a shortage or oil would be $200 a barrel

cn13's picture

Talking out of both sides oh his mouth.

Good points but far too many ???s.

Bottom line -  funds record long.

Stay short and thirsty my friends  it is only a matter of when. 

Rebellion97's picture

Not sure what's going on but it isn't just headge funds betting on oil
Big banks said to be more open to making loans to oil and gas industry
Norway Doubles Down On Arctic Oil
Middle East Oil & Gas Investment Surges To $294 Billion

Vlad the Inhaler's picture

If you look at open interest it's also very high right now, long positioning as a percentage of open interest is not really that over extended at all.

Yen Cross's picture

 That's okay, they're all hedged 4-5x1 CL" in the money" call contracts.  </sarc>

MountainMan's picture

Longs will now engineer the exit...watch for a monster 3-5 dollar upside squeeze.

sinbad2's picture

So do they know something we don't, like an upcoming attack on Iran?

Rebellion97's picture

Not sure but this guy scares the shit out of me
Gary Null and Guy Mcpherson: collapse of civilization within next 10 years, due to climate change

Must be stocking up for something big
See y'all in the next one lol

Youri Carma's picture


Shell Shakes Up Oil Trading World With Brash Buying Sprees

- As rivals objected, North Sea Brent benchmark prices spiked
- Some oil traders stepped back as gyrations sapped confidence


Saudi Arabia Breaks Records on Oil Exports and Output for Year

– Crude exports averaged 7.65 million barrels a day in 2016
– Kingdom’s oil output averaged 10.46 million barrels a day

roddy6667's picture

Hedge funds long crude oil? Who cares?? Managed funds, especially hedge funds have been wrong so much lately that there is no reason to invest in one.

You would do better to follow hedge funds and put your money where they don't.

magnetosphere's picture

hello raoul ,  oil was not $110 in 2015!

jmack's picture

Amaranth Advisors anyone?

redeleven47's picture

The system is realizing how profitable a war could be. That is this happening. 

If we're going to ask anybody for anything it should be to keep us out of war. I've never heard of a peaceful revolution either, but folks forget.