Speculators Keep Up Bets that Crude and Heating Oil Prices Will Rise
Speculators' net long positions on crude oil have been climbing steadily since last May. (image: graphics.thomsonreuters.com)
The latest report from the Commodity Futures Trading Commission on speculative activity on oil markets showed that speculators are still overwhelmingly betting that prices will rise.
On Friday, Reuters covered a report from the CFTC that showed money managers, the largest group of speculative investors, increased their net long positions on crude oil, heating oil, and gasoline at the NYMEX.
The new CFTC data showed that speculators increased their long positions on NYMEX crude oil—bets that the price will rise made by buying futures and options contracts—by more than 10,000. At the same time, speculators decreased their short positions—bets that the price will fall—by 3,000. Each position represents at least one contract, and each contract for NYMEX crude represents at least 1,000 barrels of crude oil. All told, speculators’ current net long positions represent 267.5 million barrels, according to CNBC.com. That number is just shy of the all-time record for net long positions on US crude. The CFTC report also showed a similar trend in NYMEX heating oil: speculators increased net long positions by 971.
Net long speculative positions on heating oil have fluctuated over the last 11 months, but have been increasing for the last six weeks. (image: graphics.thomsonreuters.com)
So what does all this mean? First, it means that speculative investors in US oil markets believe that it is much more likely that crude and heating oil prices will rise than fall in the medium- to long-term. This is a continuation of a long-standing trend that included net long positions on crude oil hitting their highest point in four years in January of this year. To many market observers, the oil speculators’ strong preference for betting on higher prices has become a leading cause of higher prices—massive amounts of speculative money buy up long positions, driving up demand for contracts and inflating the price of crude. One such observer is outspoken former NYMEX oil trader Dan Dicker, who has written a book about financial firms’ speculation inflating oil prices. In an observation corroborated by the CFTC’s recent report, Dicker told CNBC last month that speculative interests like exchange-traded funds (ETFs) “are exclusively buying; no one is selling and everyone wants to hold.”
What we have are crude and heating oil markets in which the demand for net long positions far surpasses demand for short positions. Put simply, a huge majority of speculative investors are certain that the prices of crude, heating oil, and other energy commodities will just keep on climbing—and they are betting heavily on that certainty.
Depending on who you ask, those big bets could be guaranteeing speculators’ expectations will come true, which would mean higher heating oil and gasoline bills for the rest of us.
