Speculators maintained a net long position of 11,659 crude futures contracts at NYMEX markets according to this Friday's CFTC release, ended three consecutive weeks net short positions since 7/22 (see the first chart below, green circle). Considering the CFTC data were as market closed on Tuesday (8/18), one day early than $11 plus up and down movements on Thursday and Friday, if there are any indications, it certainly points to more turbulence ahead.
Popular media stories attributed the $5 gain and $6 loss of light sweet crude price on Thursday and Friday to dollar and geopolitical factors (Georgia, Russian conflicts and cold war rhetoric), and thin volumes could also exacerbate magnitude of pricing movement. Dollars and geopolitical tensions have been part of equations that drive crude prices, but the relationships may be in a non-linear fashion and much more complex than headline news indicates. The Georgia and Russian conflicts began two weeks ago, crude price did not show much reactions when the news hit the public domain until this past Thursday, that was a real long delayed reaction! Making the direct connections between strong gain of crude price on Thursday to Georgia/Russian/US was a stretch, say the least, when EU brokered the agreement for Russian troop withdrawal. The relationship between dollar and crude may have become "chicken or egg" issue. It is hardly to decipher which one is the driving force, and most likely driven by the momentum and sentiment than fundamentals. The magnitude of dollar movement certainly was not in the position to explain oil price changes in last few days.
The possible reasons for the dramatic shift of oil price actions in last week were likely related to the technical factors in the crude futures market. At the NYMEX, the last trading day for Sept contract was Wed (8/20), the upward movement we witnessed on Thursday might be partly due to futures rolling into Oct contracts. Another contributor for the huge upward movement might also come from severely oversold conditions and the persistence of oil staying above $110 level, a major technical support level.
Does the net long position after almost a month bearish bets signal the coming back of raging oil bulls? I would argue as long as financial malaise stay in headlines, long oil and overweight energy on equity side are probably a little bit too early considering the extreme commodity bullish sentiment built-up over last two years and unsettled credit markets .
Popular media stories attributed the $5 gain and $6 loss of light sweet crude price on Thursday and Friday to dollar and geopolitical factors (Georgia, Russian conflicts and cold war rhetoric), and thin volumes could also exacerbate magnitude of pricing movement. Dollars and geopolitical tensions have been part of equations that drive crude prices, but the relationships may be in a non-linear fashion and much more complex than headline news indicates. The Georgia and Russian conflicts began two weeks ago, crude price did not show much reactions when the news hit the public domain until this past Thursday, that was a real long delayed reaction! Making the direct connections between strong gain of crude price on Thursday to Georgia/Russian/US was a stretch, say the least, when EU brokered the agreement for Russian troop withdrawal. The relationship between dollar and crude may have become "chicken or egg" issue. It is hardly to decipher which one is the driving force, and most likely driven by the momentum and sentiment than fundamentals. The magnitude of dollar movement certainly was not in the position to explain oil price changes in last few days.
The possible reasons for the dramatic shift of oil price actions in last week were likely related to the technical factors in the crude futures market. At the NYMEX, the last trading day for Sept contract was Wed (8/20), the upward movement we witnessed on Thursday might be partly due to futures rolling into Oct contracts. Another contributor for the huge upward movement might also come from severely oversold conditions and the persistence of oil staying above $110 level, a major technical support level.
Does the net long position after almost a month bearish bets signal the coming back of raging oil bulls? I would argue as long as financial malaise stay in headlines, long oil and overweight energy on equity side are probably a little bit too early considering the extreme commodity bullish sentiment built-up over last two years and unsettled credit markets .