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

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Hedge funds 

On September 16, 2016, the CFTC (U.S. Commodity Futures Trading Commission) released its weekly Commitments of Traders report. It reported that hedge funds increased their net long positions in WTI (West Texas Intermediate) crude oil futures and options contracts for the fourth time in the last six weeks in the week ending September 13, 2016.

These net long positions rose by 24,451 contracts to 203,944 contracts for the week ending September 13, 2016, compared to the previous week. Crude oil prices are down by 5% in the last week compared to the previous week. For more on crude oil prices, read part one of this series.

Net longs 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 second time in the last five weeks in the week ending September 13, 2016. They fell by 7,708 contracts to 2,613,455 contracts between September 6 and September 13, 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 the revenues of oil and gas producers such as PDC Energy (PDCE), 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 Vanguard Energy ETF (VDE), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), 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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