Crude Oil Traders And Hedgers Are Loading Up Price Bets

| About: The United (USO)

Summary

Speculators increased both long and short positions, with spec longs being more aggressive last week.

Oil producers reached highest hedge levels in more than 5 years, as rig counts rise.

Hedge longs are the highest in 3 years.

Both sides of the market are loading up ahead of the OPEC meeting.

Crude futures prices rose $0.83/b (1.8%) in the week ending November 15th (to correspond to the data below). Over the balance of the week, crude futures dipped by $0.12/b.

There was almost non-stop chatter by OPEC producers and Russian energy minister about the upcoming meeting producing an agreement. Saudi minister al-Fahil said an agreement was "imperative."

The Energy Information Administration (NYSEMKT:EIA) had reported (early in this COT week) that crude stocks had built by 2.4 million barrels. This build added to the record 14 million barrel build in the foregoing week. It was within the context that traders were rebalancing short and long positions.

Click to enlarge

Commitments of Traders

Utilizing the Commodity Futures Trading Commission's (CFTC) Commitments of Traders (COT) reports for crude oil, I was able to dissect how traders were re-positioning in the week ending November 15th.

The four groups I follow - Hedgers (Producer/Merchant/Processor/User) Longs and Shorts, and Speculators (Money Managers) Longs and Shorts - are defined below:

Hedgers: A "producer/merchant/processor/user" is an entity that predominantly engages in the production, processing, packing or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities.

Speculators: A "money manager," for the purpose of this report, is a registered commodity trading advisor (CTA), a registered commodity pool operator (CPO) or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.

The latest data include data for both options and futures combined for the New York Mercantile Exchange (NYMEX). All comments below pertain to each group as a whole, on balance, noting there are exceptions among individuals.

Findings

Short hedgers, primarily crude producers, added to their short positions by 27 million barrels. As a result, their hedges totaled 623 million barrels, their highest since 2010.

Click to enlarge

Click to enlarge

According to Baker-Hughes, U.S. oil-directed rigs rose by 17 last week and now stand at 471. That is up 49% from the low reached earlier this year and the highest since January 29th. Higher rig counts should increase producer hedging.

Long speculators increased their positions by 24.5 million barrels to end at 329 million barrels. Their total long position is still quite large by historical comparisons but still lower than in the aftermath of the OPEC meeting at the end of September, when the targeted production range was announced.

Click to enlarge

Click to enlarge

Spec shorts added another 21 million barrels to short positions, even after adding the largest position in the prior week. With 166 million barrels, their position is quite large again although still not as high as they were in the last peak in early August, implying they could still go higher.

Click to enlarge

Click to enlarge

Hedge buyers added another 8 million barrels to their positions. At 356 million barrels, this is the longest position they have had all year and the highest since 2013.

Netting the long and short positions of both these hedgers and speculators, short positions increased by 15 million barrels. With 105 million barrels, net positions are back to where they were in early September.

Click to enlarge

Click to enlarge

Conclusions

All categories of traders increased their bets as the OPEC meeting approached. As a result, prices seemed to be at an equilibrium point, balancing risks to the upside and downside. I think what this means is that prices can move a lot in each direction once the outcome of the meeting is known and the market gauges its implementation.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.