Swap dealers net-short crude. What does it mean for your trading?

COT Data

On the Nov. 18 weekly COT legacy report, we see Commercials net-short -178,019 contracts and Large Spec net-long 173,407 contracts. Looking at the more transparent new disaggregated COT report, you can see that Producers (true commercials) are net-short -141,731 contracts, Swap Dealers are net-short -26,288 contracts, and Managed Money are net-long 191,769 contracts.

Looking at the weekly chart, you see the Swap Dealers (green line) became net-short for the first time a year ago back in November 2010. On Friday, Nov. 11, Swap Dealers were net-short -47,213 contracts. We see them start adding to their net-shorts mid-October and watch the price action as this is happening. Look back to the end of April/beginning of May when Swap Dealers were net-short -82,000 contracts. Where was the price then? Why the change now by Swap Dealers to a net-short posture? Any ideas? Interesting, isn’t it? Have a very happy and healthy Thanksgiving.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Fundamentals

Crude oil prices extended their six-week rally to a 5-1/2 month high.

Bullish factors include:

1. The announcement by Enbridge Inc. that it will reverse the direction of the Seaway pipeline, which will open an outlet for crude from the central U.S. and Canada to refineries on the Gulf Coast and draw down excess crude supplies in Cushing, Okla., the storage hub for WTI.
2. The larger-than-expected increase in October U.S. industrial production and the rise in October capacity utilization to a 3-1/4 year high, which indicates increased fuel demand and consumption, and reduces recession fears.
3. The near-expected drop in weekly DOE distillate inventories to a nearly three-year low (-2.14 million bbl to 133.7 million bbl).
4. Q3 Japan GDP expanding at its strongest pace in 1-1/2 years (+6.0% y/y), which signals strong fuel consumption in the world’s third-largest crude consumer.

Bearish factors include:

1. Dollar strength and the action by the BOE to cut its U.K. GDP forecasts for this year and next and warn that a failure of European officials to end the debt crisis could lead to "significant adverse effects" on the global economy.
2. The unexpected build in weekly DOE gasoline inventories (+992,000 bbl vs. expectations of -1.0 million bbl).

Fundamental outlook — Medium-term bullish — The trend remains bullish in crude oil as prices rallied further to a 5-1/2 month high because the Enbridge announcement to reverse the Seaway pipeline will reduce crude inventories in the central U.S. Price gains may be limited, however, as the ever-widening European debt crisis threatens to stall the global economy, and record Russian crude output and OPEC production at a three-year high keeps global crude supplies adequate. The resumption of Libyan oil production also may keep a cap on further price gains.

I have been writing Market Pulse going on eight years. I am thinking about making a few changes. Any changes you would like to see, please email me at Gary@CRBTrader.com.

Have a prosperous trading week.

To see my market views daily you can follow me on Twitter at http://twitter.com/TrendsinFutures.