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Hedge Funds’ Net Long Positions in US Crude Oil Contracts Fell

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Hedge funds  

On September 23, 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 September 20, 2016.

These net long positions fell by 56,477 contracts to 147,467 contracts for the week ending September 20, 2016—compared to the previous week. Crude oil prices rose 3.2% in the last week compared to the previous week. For more on crude oil prices, read Part 1 in this series.

Net long positions in WTI crude oil futures and options contracts hit an eight-month low of 86,817 contracts in the week ending August 2, 2016. Net longs in WTI contracts hit the highest level since May 12, 2015, of 249,123 contracts in the week ending April 26, 2016.

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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 fell for the third time in the last five weeks in the week ending September 20, 2016. They fell by 96,075 contracts to 2,517,380 contracts from September 13–20, 2016. The open interest for WTI crude oil futures and options contracts hit an all-time high of just over 2.7 million contracts in the week ending February 9, 2016.

Impact on energy stocks and ETFs  

Hedge funds’ bullishness or bearishness can impact crude oil prices. In turn, this can impact oil and gas producers’ revenues such as QEP Resources (QEP) and W&T Offshore (WTI).

Energy 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 SPDR S&P Oil & Gas Equipment & Services ETF (XES), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), and the Vanguard Energy ETF (VDE).

In the rest of this series, we’ll take a look at some crude oil price forecasts.

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