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Back To $100 Oil? Traders Aren’t So Sure

Rig

It was a lazy summer for oil markets. From May through early August Brent crude oil prices fell from $80 to $70 as economic growth concerns overruled fears that the market was inadequately supplied. Oil’s rally had cooled- as had talk of $100 oil- and most analysts forecasted moderating prices as the US summer driving season came to a close.

The sideways trend was interrupted in mid-August after the Trump administration took aim at Iran with harsh sanctions which reignited fears that there simply isn’t enough oil being produced globally. This week those fears manifested in yet another leg higher in prices as Brent crude oil futures topped $86 for the first time since 2014. Brent is now higher by about $16 (28 percent) on the year and talk of $100 oil as a risk to consumers and a boon to suppliers is back on.

However, market sentiment indicators are not all screaming Full Speed Ahead on oil’s next leg higher. In terms of positioning, hedge funds are currently carrying a net-long in NYMEX WTI of 4% above the 2-year average and hold a net-long in ICE Brent that’s 12% above the 2-year average. In spread markets the difference between prompt and later-dated contracts is still below YTD highs and in options markets puts and calls are trading at roughly the same volatility premiums (meaning the recent interest in $100 calls is being matched by equivalent put options.) In combination, these market signals suggest to us that large oil traders, while…

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