Traders Are Shorting Oil As If The Hormuz Crisis Is Over
Hormuz Shutdown Forces Malaysia to Overhaul Crude Supply Chain What I Cover Tsvetana Paraskova is an energy and commodities journalist who has contributed to Oilprice.com for nearly a decade, covering global energy markets, commodities,… In yet another sign that the paper oil market may be too complacent about the magnitude of the supply disruption in the Middle East, trades have been boosting their short positions in oil futures for most of the past two months.
Since the beginning of April, portfolio managers have been increasingly betting that oil prices would fall, according to the latest available commitment of traders (COT) data from exchanges as of June 2.
Shorts on Brent Crude tripled between the end of March and the beginning of June, per the data compiled by energy analystJohn Kemp.
As of June 2, the short positions inBrent Crudehad jumped to their highest level since January, when the U.S.
captured Venezuelan leader Nicolas Maduro and the market expected increased supply from Venezuela in the coming months.
The surge in short positions and the weeks-long selloff of longs in the past eight weeks suggest traders are betting that supply will be restored soon.Related: Solar Tops Coal in U.S.
Power Mix for the First Month Ever The paper market plays on hopes, expectations, sentiments, and fears, and the sum of all these right now appears to be that the hedge fund and portfolio manager community is reluctant to bet on a summer of actual physical supply shortages.
But the paper market may soon face the reality of crumbling global inventories, including in the United States, where stocks at Cushing, the delivery point forWTI Crude, are just a few weeks away from dropping to minimum operational levels.
Too much noise about the ceasefire, which is being tested almost daily with one strike or a retaliatory hit after another, doesn’t help the paper market that may have become too detached from the magnitude of the supply loss.
Traders react to every signal of ‘imminent deal’ with selloffs, only to start buying oil futures again when Israeli strikes in Lebanon, U.S.
‘self-defense’ strikes on Iran, or Iranian hits at regional infrastructure threaten to unravel the fragile ceasefire.
All the while, paper market participants continue to hope for an imminent resolution and a reopening of the Strait of Hormuz that would flood the market with oil.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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