Hedge Funds' net long position in WTI Crude collapsed 27% (the biggest single 'dump' in over 3 years) ahead of the big plunge last week (and is now down almost 60% in the last month - the most since 2010). Part of a broader deflationary collapse in commodities, as Bloomberg reports [11], long positions dropped to a two-year low while short holdings climbed 25%, erasing more than $100 billion in market value from the 61 companies in the Bloomberg E&P stock index. With crude supplies still almost 100 million barrels above the five-year average [12], "there's a lot more room for prices to slide," warned one trader, "it's going to take a long time for this to work itself out."
Speculators’ conviction that oil will rally weakened at the fastest pace in three years, just before futures tumbled into a bear market.
As Bloomberg details, [11] the net-long position in West Texas Intermediate contracted 28 percent in the seven days ended July 21, U.S. Commodity Futures Trading Commission data show. Long positions dropped to a two-year low while short holdings climbed 25 percent.
Hedge Funds dumped their spec longs en masse...
[13]
“Supply is still in excess of what would balance the market,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone July 24. “We see the global balance improving in the second half of this year and in 2016 but it hasn’t happened yet.”
“The Saudis are pursuing their interests,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone July 24. “The Saudis see the U.S., Iraq and Iran raising production and aren’t going to lose market share.”
As we noted previously, there’s a chance that the downturn in the world’s oil industry may be more severe than in 1986, when business endured the deepest slump in 45 years, according to Morgan Stanley.
The global oil market is seen coming into balance in the second half of 2017 at the earliest if OPEC continues pumping crude at present levels and U.S. output remains flat, Deutsche Bank strategist Michael Hsueh said in a report last week. Hsueh said that equilibrium is more likely in 2018.
“There’s a lot more room for prices to slide,” Emerson said. “It’s going to take a long time for this to work itself out.”
