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Analyzing the Open Interest in US Crude Oil Contracts

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Open interest 

On November 18, 2016, the CFTC (U.S. Commodity Futures Trading Commission) released its weekly “Commitments of Traders” report. It reported that the open interest for WTI (West Texas Intermediate) crude oil futures and options contracts rose for the fourth time in the last five weeks in the week ending November 15, 2016. It rose by 103,278 to 2,922,285 contracts from November 8–15, 2016. It’s the highest open interest for WTI crude oil contracts in the last nine years.

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Crude oil prices rose ~5% in the last week—compared to the previous week. For more on crude oil prices, read Part 1 and Part 3 of this series. Open interest rose along with the record volatility in crude oil prices following Donald Trump’s victory, the strong dollar, and OPEC’s (Organization of the Petroleum Exporting Countries) meeting on November 30, 2016. For more on OPEC’s meeting, read Part 1 and Part 4 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.

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Hedge funds  

The CFTC reported that hedge funds increased their net long positions in WTI crude oil futures and options contracts for the second time in the last five weeks in the week ending November 15, 2016.

The net long positions in US crude oil futures and options rose by 3,906 contracts to 163,321 contracts for the week ending November 15, 2016—compared to the previous week. They peaked at 291,453 contracts for the week ending October 18, 2016—the highest level since May 12, 2015.

Impact on energy stocks and ETFs  

Hedge funds’ bullishness or bearishness can impact crude oil prices. It can impact oil and gas producers’ revenues such as Swift Energy (SFY), Carrizo Oil & Gas (CRZO), Marathon Oil (MRO), and W&T Offshore (WTI).

Moves in crude oil prices also impact ETFs such as the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the iShares US Oil Equipment & Services (IEZ), the iShares Global Energy ETF (IXC), the PowerShares DWA Energy Momentum ETF (PXI), 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 (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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