BW Communities

Shorts Up Bets Against Oil

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Open interest, the net total of long and short bets on the market, across 28 commodities held steady on Wednesday, with several key markets such as crude oil and copper seeing an increase, according to exchange data. A sharp drop in positions in the relatively smaller gasoline market, which led the collapse in prices, as well as corn and wheat was more than offset by gains in crude oil. The US oil futures benchmark hit a record high open interest. The data was similar to last Thursday, when oil prices fell precipitously, and means that for the second time in a week investors have reacted to a sharp commodity price decline by adding positions. The new bets meant the notional value of these commodities markets fell only $228 million, a sign, traders said, that bulls were not panicking but that big bets were still coming in looking for a fall in raw materials prices. The big bets came despite gasoline futures suffering their worst single day since the height of the financial crisis in September 2008, losing 7.6 per cent. The upshot is that the tug-of-war between bulls and bears in commodities has only intensified over the last week, setting the stage for more volatility in coming trading sessions. "They may be seeing some speculative long liquidation on one side of the market but you may be seeing some consumer hedge buying interest on the opposite side of things," said Tim Evans of Citi Futures Perspective in New York. Trend Signals Commodity investors typically look at the direction prices, open interest and trading volumes are moving for clues to the future direction of the market. Rising open interest with strong volumes and a falling price is seen as a sign that a market will continue to decline because more short sellers are entering. The number of contracts traded on Wednesday exceeded the 30-day average by nearly a quarter. Nearly 820 million paper barrels of West Texas Intermediate crude oil changed hands. US crude futures on the NYMEX set a new record high for open interest on Wednesday as prices plunged more than 5 per cent and took oil back below $100 per barrel. Crude futures had also set a record open interest during the previous sell-off on May 5. Indeed, both commodity sell-offs in the past week may well have been exacerbated by the huge short bets, traders said. But growing open interest in energy, which dominates the commodities sector, has obscured a shrinking of open interest in other areas. Open interest in cotton is down 22 per cent, soybeans have dropped 17 per cent and silver has fallen 12 per cent. Coffee saw open interest hit a 1-1/2-year low on Wednesday as prices have tumbled from a 34-year high. Copper open interest is at the lowest level since October 2009 and many agricultural commodities, such as corn and soybeans, are at their lowest number of open positions since the fall of 2010. (Reuters)