Hedge Funds Change Net Long Positions in WTI Crude Oil

On March 3, 2017, the CFTC (U.S. Commodity Futures Trading Commission) released its weekly Commitments of Traders report. It showed that hedge funds decreased their net long positions in US WTI (West Texas Intermediate) crude oil futures and options contracts by 26,930 contracts to 386,707 contracts in the week ending February 28, 2017—compared to the previous week. Hedge funds’ net long positions hit 413,637 contracts in the week ending February 21, 2017—the highest level ever. Hedge funds reduced their net long positions due to:

• record US crude oil inventories
• rise in US crude oil production
• rise in US crude oil rigs
• President Trump’s energy policy
• expectation of strong dollar

Crude oil (SCO) (USO) (XLE) prices fell 1.5% for the week ending March 3, 2017—compared to the previous week.

However, near-record bullish positions by hedge funds on WTI crude oil suggest that OPEC’s crude oil production cut deal could extend in 2H17 to support oil prices. It could be the most important positive driver for crude oil in 2017.

Higher crude oil prices have a positive impact on oil and gas producers’ earnings such as Matador Resources (MTDR), Chevron (CVX), Sanchez Energy (SN), Denbury Resources (DNR), and Goodrich Petroleum (GDP).

April natural gas futures are below their 20-day and 50-day moving averages of $53.6 and $53.1 per barrel as of March 6, 2017. It suggests that prices are experiencing bearish momentum. Bearish momentum suggests an additional fall in crude oil prices. 

REYL Bank expects that crude oil prices could trade between $50 and $60 per barrel in 2017. High OPEC compliance will support oil prices. However, the expectation of a rise in US production will put a lid on crude oil prices. 

A recent Reuters survey estimates that Brent crude prices will average $57.52 per barrel in 2017. Surveys also suggest that Brent prices won’t exceed $60 per barrel even if OPEC extended its output cuts to 2H17. 

Goldman Sachs (GS) expects that US WTI and Brent crude oil prices could average at $57.50 per barrel and $59 per barrel in 2Q17, respectively. US WTI and Brent crude oil prices averaged $43.3 per barrel and $43.7 per barrel, respectively, in 2016.

Read Will Crude Oil Prices Test 3 Digits Again? for more information on crude oil price forecasts.

For more on crude oil prices, read What Can Investors Expect in the Crude Oil Market in 2017 and OPEC, Russia, and the US Will Impact Crude Oil in 2017.

For energy-related analysis, visit Market Realist’s Energy and Power page.