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Hedge Fund Positions in Crude Contracts Are Highest since May 2015

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Hedge funds 

On October 14, 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 five weeks in the week ending October 11, 2016.

The net long positions rose by 33,439 contracts to 287,942 contracts for the week ending October 11, 2016, compared to the previous week. It was the highest level since May 12, 2015. Crude oil prices rose 2.1% in the last week compared to the previous week. For more on crude oil prices, read part one of this series.

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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 rose for the third time in the last five weeks in the week ending October 11, 2016. Contracts rose by 95,926 to 2,768,466 contracts from October 4–11, 2016, which was the highest open interest for WTI crude oil futures and options contracts ever.

Impact on energy stocks and ETFs 

Hedge funds’ bullishness or bearishness can impact crude oil prices, which can impact the revenues of oil and gas producers like Northern Oil & Gas (NOG), SM Energy (SM), WPX Energy (WPX), and W&T Offshore (WTI).

Crude oil prices also impact ETFs such as the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the DB Crude Oil Double Short ETN (DTO), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the Direxion Daily Energy Bear 3x (ERY), 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 last part of this series, we’ll take a look at some crude oil price forecasts.

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