Speculative volume soars in oil markets

WTI Apr11.pngCrude oil has been a speculators’ paradise for the past 9 months. Central banks have been making large amounts of cash available at 0% interest. In turn, this has funded larger and larger speculative positions in financial and commodity markets.

CME, the world’s largest derivatives market, saw volume up 31% in March vs 2010.

The chart above, from Petromatrix, highlights the problem. It shows net NYMEX length for the Large Speculator category in WTI crude oil futures:

• Since last August, when the Fed first announced QE2, the Speculators built net length of 200kbbls by December (light blue line)
• This year, they have increased this position by over 25% (green line)
• Their net length is now 250% higher than last April, and 500% larger than in 2008 – when the market was heading towards its $147/bbl peak

We are, of course, getting close to the start of the US driving season at the end of May. And already gasoline prices are approaching the $4/gal level, which has proved politically very sensitive in the past. This week, they will reach $3.77/gal nationally, and $4/gal in California.

In Europe, prices are already higher than in 2008, due to Brent’s premium over WTI and currency weakness. The blog’s local garage has been open 31 years, but may well now close as the working capital needs have become so large. One tanker of gasoline now costs it £250k ($400k).

Yet as noted many times in the blog, global inventories remain near record levels.

Petromatrix raise the key question – will today’s high prices lead politicians to start asking questions about the value of all this speculative activity? If they do, we might discover some interesting answers.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

, ,

One Response to Speculative volume soars in oil markets

  1. Thom Fitzpatrick 6 April, 2011 at 10:12 pm #

    Hi Paul,
    Pardon my ignorence but fact that the chart goes negative in 2009, does that mean speculators were short?
    Also does the increase in 2010-2011 imply that ‘producers’ (or someone else) are selling more?

Leave a Reply