Oil bulls stay long

Oil Bulls Die Hard

Oil had a drop of Humpty Dumpty proportions yet somehow the oil bulls still believe.

It seems the bulls did not need all the king's horses and all the king's men; they just need the Fed and hopes of China stimulus and fear, to stay long. While oil fell a dramatic 6% plus last week, commodity funds bought the break, increasing their long positions by 5.6%, which is the fifth straight week that they have increased their long positions. While oil continues to fall as the German IFO Business Confidence weakens and German Chancellor German Chancellor Angela Merkel and French President Francois Hollande failed to agree to the timing of banking reforms, the oil bulls are just going to die hard.

According to the CFTC crude oil future's open interest increased an impressive 8.3% in the month of August. Commercial traders accounted 51.2% of open interest, held net short positions as they increased their long positions by 5.2% and increased their short positions by 13.4%.

Non-commercial participants, or speculators, accounted for 44.4% of open interest and held net long positions. They increased their long positions by 11.3% and increased their short positions by 1%. Non-reportable participants, who accounted for 4.5% of total open interest, held net long positions; they increased their long positions by 4.8 percent and increased their short positions by 5.2 percent.

So it seems that despite the big drop, the speculators are bullish regardless of the drop. The commercials of course crushed the specs last week, but the big specs are staying long in a classic game of chicken. How long can the specs hang in there with the commercials breathing down their throat?

We also saw staying power in the product side of the market. We saw RBOB gasoline futures open interest surge 12% in August. Commercial participants accounted for 56.6% of open interest, held net short positions; they increased their long positions by 4.8% and increased their short positions by 7.6%. Non-commercial participants, who accounted for 36.3% of open interest, held net long positions. They increased their long positions by 17% and increased their short positions by 27.4%. Non-reportable participants, who accounted for 7.1% of total open interest, held net long positions; they increased their long positions by 21.2% and increased their short positions by 11.6%.

In heating oil futures open interest increased 4.6% in August with commercial participants accounting for 61.5% of open interest, held net short positions; they decreased their long positions by 1.1% and increased their short positions by 11.8%. Non-commercial participants, who accounted for 27.5% of open interest, held net long positions. They increased their long positions by 8.1% and decreased their short positions by 6.1%. Non-reportable participants, who accounted for 11% of total open interest, held net long positions; they increased their long positions by 25.7% and decreased their short positions by 10.2%.

Perhaps the rising open interest in oil came as trading funds looked to park money in oil as opposed to the sinking grain complex. Overall, hedge fund managers reduced their exposure to commodities to the lowest levels since June.

Today the oil market has to overcome European worries. The conflict over the speed at which a banking union can be created could slow the time frame for a Spanish bailout and cause turmoil in their bond market as well as others like Italy and Greece. It seems that Greece can’t live up to the time table of reforms agreed to on the last bailout. Another reason the market wants a swift response to a banking union.

This will give the dollar a boost and oil some pressure and perhaps the main reason we are not down more is that there is a growing anticipation that we will see China move to stimulate its softening economy.

 

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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