Crude Crumbles To Fresh 3-Month Lows As Hedgies Unwind Record Longs

WTI Crude (Sept) oil futures have contonued their 6-day slide this mornig, pressing back to a $43 handle at 3-month lows. While the seasonality, both price and oil demand, and gasoline glut remain significant overhangs, it appears a bigger driver for now is the rapid unwind of record long speculative positioning in crude markets.

As Bloomberg reports,

Oil’s retreat to a three-month low this week demonstrates that surpluses in other parts of the market, most notably refined fuels like gasoline, are holding back any lasting recovery.


Combined inventories held by industrialized nations of all forms of oil -- from crude to refined products to natural gas liquids -- reached a record of more than 3 billion barrels last month, data from the Paris-based International Energy Agency shows.



In the U.S., gasoline stockpiles were at the highest for the time of year since 1984 as record consumption failed to drain the glut refiners created when crude was cheap, according to the Energy Information Administration.


Sept 2016 has pushed back to fresh cycle lows...



Tracking last year's pump-and-dump of hope perfectly.


As demand is set to tumble...



But, as Reuters reports, it appears the bigger driver for now is hedge funds have been liquidating their former record bullish position in crude futures and options putting downward pressure on oil prices in recent weeks. But now the liquidation of old long positions is being replaced by the establishment of new short positions as fund managers try to capitalise on the downward cycle in prices.

Hedge funds and other money managers cut their net long position in Brent and WTI futures and options by 31 million barrels to 453 million in the week ending on July 19.



The net bullish position has been reduced by 197 million barrels from a recent high of 650 million in the middle of May and 210 million barrels from an earlier record of 663 million at the end of April.


The former emphasis on long liquidation is now being replaced by fresh short selling. In the week to July 19, long positions actually rose by 5 million barrels as some funds sought buying opportunities after prices had been battered down.


But short positions increased by almost 36 million, as many more managers positioned themselves for a momentum-driven drop in prices coupled with mounting concerns about weakening demand fundamentals.

Of cvourse, stocks don't care, as Alhambra's Jeffrey Snider noted, stock prices at record highs, or near them, is likely being driven by renewed hope for monetary policy wherever it may strike, all the while forgetting how patently ineffective past monetary policy has been. The energy sector and the renewed drop in the futures curve (the whole curve, though more so at the front) is remembering the consequences of monetary policy that doesn’t work while at the same time finding still little evidence that anything has changed (and some evidence that if something has changed it is only further in the “wrong” direction). Stocks once more trading, though much less enthusiastically, on what “should be”; energy trading on what actually is. All that is also a replay of last year, specifically last July.