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August 7, 2017

Crude oil outlook remains gloomy

Crude oil outlook remains gloomy

Western investment funds sharply increased their bets on oil growth. For a week, the volume of long positions in crude oil has increased by $2.1 billion.

According to the Commission on Trade in Commodity Futures for the week from July 25 to August 1, hedge funds bought 42.5 thousand long contracts in their portfolios and sold 1.4 thousand short contracts. Thus, the volume of their longs rose to 365.7 thousand contracts, and shorts fell to 83.4 thousand. Thus, the net long position on oil rose to 282.4 thousand contracts or to 13.8 billion dollars.

Investment funds have been pessimistic on oil growth since April 2017. Since then, they either have been reducing longs, or did not commit any serious action. However, recent changes in portfolios have not led to significant changes in the oil market. During the same period prices of the black gold grew only by 1.2%.

Amid this, I would like to note the actions of the largest bidders. They, in turn, preferred to “short” oil. For example, the spread between the gross positions of top-4 traders increased sharply, and in favor of short contracts. As of August 1, the difference between shorts and longs jumped to 2.7 percentage points, while just a week ago it was equal to 1.5 percentage points.

The last time the largest participants of the New York Mercantile Exchange made such sharp movements in November 2015, just a few months before the turn in the oil market.

In our opinion, hedge funds can throw “black gold” even higher, but if their actions will go against the actions of the largest traders, then it is quite possible that after the upward movement a serious price collapse will occur.

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