Oil Trading Activity at the NYMEX Hit Record Highs Twice in Two Days
The highest number of crude oil contracts ever changed hands at the NYMEX on Friday and Monday. (image: Nicholas Whitaker for HeatingOil.com)
The CME Group, which owns and operates the New York Mercantile Exchange (NYMEX), announced on Monday that Friday January 28th was the most active oil futures and options trading day in the market’s history. On Tuesday, CME announced that Monday’s trading broke Friday’s record oil options contracts trading volume, making for two all-time highs on two consecutive trading days.
“Trading volume” refers to the number of contracts changing hands over a given period of time. According to a Wall Street Journal report published on Monday, the trading volume of NYMEX light, sweet crude oil hit 1,472,088 futures contracts on Friday, beating the previous record set in April 2010 by nearly 50,000 contracts. Friday also saw a record high in the trading volume of crude oil options contracts, which allow investors to bet on the price movements of futures contracts. Then, on Tuesday morning, CME issued a press release announcing that the record for crude oil options trading volume had been broken again during Monday trading.
While the short-term surge in oil trading at the NYMEX can be partially explained by the political turmoil in Egypt that came to a head on Friday, it also represents the ballooning interest in oil as an investment from large speculative investors like hedge funds, pension funds, and private investors. Following legislation that opened up commodities markets to such investors in 2000, the NYMEX has seen a massive influx of new investors, many of whom are interested primarily in crude oil. The Journal explained,
The rise in trading volumes underscores the surging investor interest in commodities, particularly crude oil. The price increase to $147 a barrel in 2008 created a wider following of the oil markets, drawing retail investors as well as new institutional money managers into a market dominated for decades by global trading firms, major banks and dedicated specialists.
The records reached on Friday and Monday follow another record set in early January, when the number of speculators’ (investors looking for profit with no interest in physical oil) bets that the price of oil would rise, known as “net long positions,” reached its highest level in over four years.
Growing evidence that the oil markets are currently experiencing an unprecedented flood of speculative investors had spurred many advocates for more stable oil prices, specifically businesses that traffic in oil products and use commodities markets to hedge risk, to blame uncontrolled speculation for recent price volatility. These same advocates continue to clamor for limits on oil speculation as a potentially effective antidote to speculators’ outsized influence on prices. But while the speculative rush into oil markets has coincided with sharp oil price spikes over the last decade, the link between speculation and higher or less stable oil prices has not been conclusively proven, a fact frequently cited by opponents to speculation limits such as commodity exchanges and investment banks.
