With rebound of crude oil prices, hedge funds are showing enough faith in them. While the crude oil producers across the world reduced their output – the bets of hedge fund investors on West Texas Intermediate rose significantly. It is at highest since the month of June 2014.
In December, when non-OPEC members, as well as OPEC, agreed upon reducing their production WTI jumped up to 18-months high. Kuwait, Algeria, and Saudi reduced their oil production drastically and on the other hand, Russia cut down its supply phases, faster than what was estimated.
Net-long positions have increased (mostly by Hedge funds) by 14%. WTI increased 3.3% and now trading at $52.48 per barrel. Investors and fund managers are taking long positions on oil market as they are estimating the OPEC and non-OPEC to reduce the output of Crude oil to increase the prices further.
Producers Cutting Supply – Fund Managers Betting Long
Almost 1.5 million barrels are withdrawn from the market within first two weeks of January 17 following the agreement, which is more than what was expected. Most of the oil producers have decreased production significantly.
WTI net-long positions advanced by 43,301 contracts and money managers are taking positions on oil stocks. Short positions advanced by 11%, long positions increased by 14% to a record high of 406,723.
As the futures increased by 3.5%, net-bullish positions increased by 0.4% on gasoline to a record high since July 2014 (63,678 contracts).
Producers Hedging Market Positions to divert the Risk
Oil companies in US are taking part in the rally to hedge their risk for the upcoming years. Oil producers are playing the game with caution and taking short positions to protect their assets from decreasing Crude Oil prices. Contracts on the short position of producers have increased to 6, 77,479 which is highest since the year 2007.
Producers are protecting their cash flows by taking market positions; it can protect them against price crash in the future.
As I pointed out in my 2017 trading outlook, Crude oil sentiment is turning positive, Will Price action does the same? Time to keep an eye on Charts!
