As hedge funds and money managers place record trades on a rally in oil, the price itself has fallen asleep. Logic dictates that something should give. Here are five charts examining the unprecedented speculative build-up and what the market’s next turn might be.
1. Frenzied betting...
At the start of February, speculators were betting a net 865 million barrels of oil across the market’s two global benchmarks that prices would rise. As well as being a record, their bullish positioning expanded by 78 percent since just before the Organization of Petroleum Exporting Countries and 11 other producer nations pledged to cut global crude supplies. Benchmark prices rose about 20 percent over the same period.
2. ...sleeping market
Unfortunately for the bulls, the oil market itself has fallen asleep after an initial surge. As Standard Chartered analysts including Paul Horsnell pointed out this week, prices have been stuck around a dollar a barrel above or below $55.50 since mid-December. Meanwhile U.S. crude closed above $54 a barrel only once since OPEC’s Nov. 30 meeting, despite crossing that price level 14 times. “If crude prices are to break out of their recent range in the next few weeks, the risk is to the downside," JBC Energy GmbH in Vienna said Thursday.
3. Spreads still show glut...MORE
The shortest-term oil prices show that an oversupply endures. The nearest Brent and West Texas Intermediate contracts remain in a structure known as contango, which typically occurs when there is too much supply, depressing short-term prices....
HT: FT Alphaville's Further Reading post.
See also yesterday's "Why a NYMEX Veteran is Getting Nervous about Oil":
...The last few weeks of U.S. inventory builds would have knocked the futures down by 10-15% and the fact they didn't is cause to wonder: WTH, WTI? $53.96 up 0.36 today: