Oil users suggest crude could tumble

Traders in oil contracts have signalled that they expect the price of crude to fall.

While most commodities have struggled this year, oil has been resilient. Prices eased slightly since February on the back of weaker global growth and fewer geopolitical tensions, but with Brent crude trading at almost $110 a barrel this week, they remain relatively high by historical standards.

Can this surprising strength continue? Probably not, suggests Steve Briese, who writes the Bullish Review of Commodity Insiders, a market-timing newsletter. Briese points to recent trends in the Commodity Futures Trading Commission's weekly Commitment of Traders (COT) report, which summarises the net positions held by futures traders in America. Right now it shows commercial traders producers and users of oil have record net short positions, offset by record long positions held by speculators.

In essence, those traders whose businesses depend on reading oil prices correctly are signalling that they expect crude to fall, while the support is coming from financial market participants. Large commercial short positions certainly don't guarantee prices will fall in the near future, although previous records in April 2011 and February 2012 both preceded large sell-offs. But they indicate that if the market breaks, the decline could be rapid. That's because the speculators holding the opposite positions are dominated by trend-following funds, says Briese.

Once the trend turns down, these kinds of traders will liquidate their long positions quickly and may well go short, putting further downward pressure on prices.

Recommended

Energy prices expected to fall in July - should you switch to a fixed energy tariff?
Energy

Energy prices expected to fall in July - should you switch to a fixed energy tariff?

Fixed energy deals are starting to make a comeback, with one major provider already offering it to existing customers - we look at how much they may c…
27 Mar 2023
High energy prices are here to stay
Energy

High energy prices are here to stay

The rising cost of producing energy means high oil and gas prices are here to stay argues Max King
24 Feb 2023
When is the next energy price cap announcement and what does it mean for your bills?
Energy

When is the next energy price cap announcement and what does it mean for your bills?

Ofgem is set to announce the latest price cap next week - we look at what it could be and if it means lower energy bills this year
20 Feb 2023
The outlook for Shell shares is mixed, despite bumper profits
Energy stocks

The outlook for Shell shares is mixed, despite bumper profits

With profits surging, it looks as if Shell is on a roll, but the company’s growth from here is hard to see as Rupert Hargreaves explains.
6 Feb 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall to around £2,000, based on average typical use, for the first time since 2022. We have all the details.
31 Mar 2023
Best areas for buy-to-let in the UK
Buy to let

Best areas for buy-to-let in the UK

If you’re thinking of getting a buy-to-let property you’ll want to know the areas in the country with the highest rental yields
29 Mar 2023
The best one-year fixed savings accounts - March 2023
Savings

The best one-year fixed savings accounts - March 2023

Earn over 4% on one-year fixed savings accounts.
30 Mar 2023