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What This Week's Fundamental Indicators Say about Crude Market

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 10
What This Week's Fundamental Indicators Say about Crude Market PART 10 OF 11

Hedge Funds Cut Bullish Positions on US Crude Oil Contracts

Hedge funds   

On September 9, 2016, the CFTC (U.S. Commodity Futures Trading Commission) released its weekly Commitments of Traders report. It reported that hedge funds reduced their net long positions in WTI (West Texas Intermediate) crude oil futures and options contracts for the second straight week in the week ending September 6, 2016.

Hedge Funds Cut Bullish Positions on US Crude Oil Contracts

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Net long positions fell by 40,910 contracts to 179,493 contracts for the week ending September 6, 2016, compared to the previous week. Crude oil prices are down 5% in the last one month. For more on crude oil prices, read part one of this series.

Net long positions in WTI crude oil futures and options contracts hit an eight-month low of 69,755 contracts in the week ending November 17, 2015. Net longs in WTI contracts hit the highest level since May 12, 2015, of 249,123 contracts in the week ending April 26, 2016.

Commercial and non-commercial traders   

The CFTC divides traders into two categories, commercial and non-commercial. Hedge funds are non-commercial traders, while oil producers and consumers are commercial traders. Commercial traders use the futures and options markets for hedging activity to offset crude oil price volatility.

Open interest  

Open interest for WTI crude oil futures and options contracts rose for the second straight week in the week ending September 6, 2016. They rose by 85,443 contracts to 2,621,163 contracts between August 30, 2016, and September 6, 2016.

Impact on energy stocks and ETFs  

Hedge funds’ bullishness or bearishness can impact crude oil prices. In turn, this can impact the revenues of oil and gas producers such as Bill Barrett (BBG), Bonanza Creek Energy (BCEI), and W&T Offshore (WTI).

Prices also impact ETFs such as the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the Vanguard Energy ETF (VDE), the Fidelity MSCI Energy ETF (FENY), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), and the Direxion Daily Energy Bear 3x ETF (ERY).

In the next and final part of this series, we’ll take a look at some crude oil price forecasts.

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