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Crude Oil Market: Hedge Funds Are Bullish

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Crude oil prices rally

This series analyzes crude oil prices and fundamentals. For an in-depth fundamental look at oil and gas and related companies, sectors, and drivers, please refer to our Energy and Power page.

November WTI (West Texas Intermediate) crude oil futures contracts rose for the second day in a row. Prices rose slightly by 0.40% and settled at $49.63 per barrel on Friday, October 9, 2015. WTI prices advanced due to slowing US production and the improving demand consensus. The US benchmark following ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) diverged from the direction of crude oil prices in Friday’s trade. These ETFs fell by 0.31% and 0.78%, respectively, on October 9, 2015.

[marketrealist-chart id=716489]

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US Dollar Index 

The US Dollar Index fell by 0.52% on Friday, October 9, 2015, against the basket of currencies. The speculation of a delay in the interest rate hike or possible QE (quantitative easing) by the Fed is driving the US Dollar Index lower. It fell for the second week by 1.2% against the global currencies. The depreciating dollar supported dollar-denominated crude oil. The weak dollar makes crude oil affordable for oil importing nations. As a result, crude oil prices rose by 10% in the last two weeks.

Hedge funds

The CFTC (U.S. Commodity Futures Trading Commission) released its Commitment for Traders report on October 9, 2015. The government data showed that US oil speculators increased their long positions to the highest level in the last three months for the week ending October 2, 2015. The hedge funds increased their long positions in WTI by 19,053 to 172,967 contracts—the highest since July 7, 2015. The increasing long positions suggest that hedge funds are bullish about the crude oil market. Meanwhile, the bearish position fell by 4.2% compared to the previous week.

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China market

The Chinese market rose by 3% on Thursday, October 9, 2015. It’s the highest increase in the last two weeks. The Chinese market is expected to hit a seven-week high on the speculation of a reserve rate cut by the Chinese government and a possible stimulus program. China is the second-largest crude oil importer and consumer. The government’s steps to improve its slowing economy sent positive vibes in the global crude oil market.

OPEC

OPEC (Organization of the Petroleum Exporting Countries) estimates that crude oil demand could rise by 1.5 MMbpd (million barrels per day) more than the previous estimates. Abdalla Salem El-Badri is OPEC’s secretary general. He added that the non-OPEC production could fall. The consensus of narrowing supply and the demand gap could benefit crude oil prices. India and South Korea could boost the crude oil demand. The US will contribute to the fall in crude oil production. 

Seasonality 

The seasonal refinery maintenance and mild weather could curb the demand for crude oil in the US in the short term. The end of the summer driving season will also negatively influence crude oil prices. The long-term downward trend of oil prices will impact high US oil producers the most like Hess (HES) and Chevron (CVX) compared to international players like Total (TOT) and BP (BP). They also impact oil and gas ETFs like the iShares U.S. Oil & Gas Exploration & Production (IEO) and the iShares Global Energy (IXC).

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