Two events this week give us some insights on how to trade the oil markets and oil stocks for the next few weeks.
First, there’s been a tremendous financial move in the oil futures market. Most energy hedge funds and other speculative non-commercial traders have been looking at the oil markets in 2017 much as I have – and betting that the OPEC production guidelines and an inevitable re-balancing of global oil supply would lead to a constructive price spike for oil. In CFTC commitment of traders’ reports, we’ve generally seen energy hedge funds with a fairly bullish stance.
Twice in the past year, we’ve seen that those bullish bets were premature and have been very instrumental in causing short-term mini price busts. If you know me, you know that I am keen on the financial inputs to oil prices, often finding them far more important than the fundamentals that underlie them.
In the last week, there’s been a flight from oil – now to the point that oil speculators, while not quite short, are at their lowest ‘long ratio’ levels we’ve seen in 2017, and nearly match those we saw in November of 2016:
(Click to enlarge)
What’s interesting is that those November levels led to a nearly ten-dollar rally in the price of crude last year – it was an important indicator of an entirely technical short squeeze of positions that occurred then, and is in the process of occurring now.