The Commitment of Traders report released last week continued to show a liquidation of the net length in WTI futures and options by money managers. Net length has now declined to to around 77,000 contracts. The recent peak in money manager net length was approximately a net 356,000 lots of futures and options combined in mid June 2014. The WTI front month was trading at near 106 dollars per barrel. Significantly MM length in June 2014 was around 379,000 contracts, but the short position was ONLY 22,000 lots. Since then, MMs have pared their length by 125,000 contracts and have dramatically increased their short positions by almost eight times to a short of 175,000 contracts. Only once over the past ten years has the short position been quite so large and that was as recently as December 8th when the short position was 181,849 contracts. While the market has slumped dramatically since then it is still important to note that the fairly large short money manager position could set the market up for a sharp technical rally.
Further supporting this analysis is the commercial position. Producer short positions in mid-June 2014 were around 388,000 contracts. Incredibly, despite the fact that prices have declined around 76 dollars per barrel, the gross short futures and options position has increased by only 27,000 contracts to 415,000 lots. What is not a surprise is the fact that commercials liquidated length by 96,000 contracts to a gross long of around 202,000 contracts in the same period.. Since producers did not take advantage of market rallies to meaningfully add to short positions we question whether gross shorts are going to be added at these levels. If anything, as the market shows signs of stabilizing commercials may begin to add gross length.
Finally its interesting to note that as MMs have added significant shorts and the commercials have added some short positions, the swap dealers have have basically taken on the other side of these trades. They have added around 107,000 gross longs since mid-June 2014, while covering almost 300,000 gross short positions. Undoubtedly the swap dealers would sell into rallies to lighten length,which would undoubtedly tend to dampen price action. A sign of the times is that the CFTC reports that since mid-June 2014 swap dealer total open interest fell from close to 1.0 million contracts to its present 843,305 lots. Also of note is the fact that “other” reportable and non reportable traders net position did not change all that much during the period.In mid June net length for “other” was 124,000 contracts and is now 149,000 net long futures and options.
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