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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Hedge Funds Increase Bearish Bets As Oil Nears $40

One-hundred and forty-six years after the Suez canal opened in Egypt, and one-hundred and two years after the first steamship traveled through the Panama canal, the crude complex is praying for calm waters, but seems set for further stormy seas. (Prices are currently choppy and looking to be sunk by a stronger dollar).

Jumping straight into the economic data, we’ve had ZEW sentiment data out of Europe today, with the six-month economic outlook for Germany rebounding after seven consecutive monthly drops. The print for the Eurozone, however, edged lower (and below consensus), dropping for a sixth month in seven:

ZEW Eurozone Economic Sentiment (source: investing.com)

In the U.S., the main release of note has been inflation data; a 0.2 percent tick higher on the year-over-year print has been gladly accepted. This was better than Blighty, where inflation year-on-year in the UK was negative for a second consecutive month…for the first time since records began. Related: Global Supplies Outweigh Paris Attacks For Oil Prices

In terms of action in commodityland™, we are seeing selling once more as iron ore reaches a four-month low while copper sees levels not seen in the last six years. Headlines scream that the steel market is ‘in shambles‘, while silver has fallen for fourteen consecutive days, its longest losing stretch in sixty-five years. (I am not the purveyor of positive news today it would seem…).

Even Texas power is preparing to hit its lowest full-day average in five years due to record wind output. (Although this is a good thing for end-users. Hooray!). On-peak power at the North hub has dropped to $13.51/MWh in recent days as wind power surges:

(Click to enlarge) Related: Saudis Planning For A War Of Attrition In Europe With Russia’s Oil Industry

Even retail gasoline prices are getting in on the act. We are down to $2.14/gal on the national average, with South Carolina breaking below $1.90/gal. With another month or so of downside pressure as refineries return from maintenance to boost supplies, AAA projects that we could be testing $2/gal on the national average by Christmas. @TomKloza says 50 percent of U.S. gas stations will be below $2/gal by Thanksgiving.

Related: The Bakken’s Big Decline Is Already Underway

Finally, according to the latest CFTC data, speculative short positions in WTI rose by 21 percent last week, propelling them to their highest level since August. Net long positions for hedge funds dropped by 16 percent.

This negativity seems warranted as U.S. inventories sit at 487 million barrels, just shy of the record of 490.9 million barrels set in the spring of this year, and with a build expected from tomorrow’s inventory report. But we must remember that turning points in crude occur when long or short positions reach extremes (as seen in March and August). Nonetheless, we here at ClipperData are all too aware of the tanker traffic jam sat in the Gulf of Mexico of 36 vessels, 26.6 million barrels, as of yesterday – and the weak fundamental position that underscores.

By Matt Smith

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