Why Did Hedge Funds’ Bullish Position in US Crude Oil Fall?
On November 14, 2016, the CFTC (U.S. Commodity Futures Trading Commission) released its weekly “Commitments of Traders” report. It reported that hedge funds decreased their net long positions in WTI (West Texas Intermediate) crude oil futures and options contracts for the third time in the last five weeks in the week ending November 8, 2016.
Hedge funds’ bullish position in WTI contracts fell to a seven-week low in the week ending November 8, 2016.
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The net long positions in US crude oil futures and options fell by 74,711 contracts to 159,415 contracts for the week ending November 8, 2016—compared to the previous week. The net long positions fell 47% week-over-week. They peaked at 291,453 contracts for the week ending October 18, 2016—the highest level since May 12, 2015. In contrast, short positions in WTI contracts were at the lowest levels in more than four years for the week ending November 8, 2016.
Crude oil prices rose 0.4% in the last week—compared to the previous week. For more on crude oil prices, read Part 1 and Part 2 of this series. Hedge funds’ short positions rose ahead of OPEC’s (Organization of the Petroleum Exporting Countries) meeting on November 30, 2016. For more on OPEC’s meeting, read Part 1 and Part 5 of this series.
Commercial and non-commercial traders
The CFTC divides traders into two categories—commercial and non-commercial traders. 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.
The open interest for WTI crude oil futures and options contracts rose for the third time in the last five weeks in the week ending November 8, 2016. It rose by 164,359 to 2,819,007 contracts from November 1–8, 2016. It’s the highest open interest for WTI crude oil futures ever.
Impact on energy stocks and ETFs
Crude oil prices also impact ETFs such as the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the iShares US Oil Equipment & Services (IEZ), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the Direxion Daily Energy Bear 3x ETF (ERY), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the ProShares Ultra Bloomberg Crude Oil (UCO), and the Vanguard Energy ETF (VDE).
In the last part of this series, we’ll take a look at some crude oil price forecasts and the contango structure in the market.