Peak Oil Optimism

Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal...

 

As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

 

 

While the focus remains on geopolitical worries the speculative data are pointing to an increased risk of a setback. A gross long of 322 million barrels only requires a small change in the fundamental or technical picture to turn into a rout. 

Speculative position in Brent Crude

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Shortly after this note, it appears Goldman also sees the same thing...

Goldman strategists John Marshall and Katherine Fogertey, in note, say have seen evidence from option markets that energy/oil positioning has “moved overly bullish in recent days.”

 

Investors willing to pay increasingly high prices for calls relative to puts, citing decline in put-call skew

 

Sees shift as “sharp contrast” vs overly bearish positioning from March 18

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Trade accordingly.