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Speculators Held Crude Net Short Positions First Time in 17 Months!

In my 7/8 post (Just the beginning?), speculator's futures and options contract positions were examined, it indicated that crude would begin long over due correction. I used speculator's futures contract positions this week to assess the indication of crude oil movement.

US crude futures market had a very significant sentiment change based on this Friday's data from CFTC's release for market close 7/22. For the first time in the last 17+ months, "non-commercial" participants, or speculators held net short crude futures positions at NYMEX (see chart "Crude weekly price and speculator net crude
futures positions"). The net short positions of 3,640 contracts were mainly caused by closing nearly 12,000 long positions and increasing over 14,000 short positions for the week. The total outstanding short positions for speculators stood at over 201,600, the second highest level (the highest level was 203,000, happened two weeks ago on 7/8) since the beginning 2006, the long positions declined to 198,000. Actually, speculators had steadily reduced long positions starting June and increasing the short exposures.

The NYMEX crude futures sent out some warning signs based on the extreme readings on speculator short and long futures contract commitments in later June and early July. The last time speculators held net short position, crude was traded just below $60 on 2/13/07, and prior to that week, speculators changed their heavy long position in the fall 2006 to net short and neutral positions in the next few months. How long will speculators be in the bear camp this time around ? Only time will tell, but it would be highly doubtful that the momentum will turnaround in the short time period considering the excess fear/greed was built into crude prices in the last few months.

One of interesting statistics from this week data was that speculator's "spreading" (both long and short) positions spiked to about 1.2 millions in the last two weeks, all time high according to the available data. This could imply more volatile crude market ahead.
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