According to positioning data from the US Commodity Futures Trading Commission, Hedge funds and other money managers have started to ready themselves for another big spike in oil prices in the next few months.
By Aug. 28, hedge funds had accumulated a net long position in WTI-linked futures and options equivalent to 207 million barrels up from 151 million per month earlier, the largest net long position since May. The rising drumbeat of war in the Middle East coupled with heightened chatter about more quantitative easing from the US Federal Reserve and the steady rise in prices itself has gradually drawn in more hedge funds on the bullish side.
The number of hedge funds and other money managers running long positions of at least 350,000 barrels in the main NYMEX light sweet crude oil contract has risen from 65 at the end of July to 82 at the end of August.
According to CFTC records, on the other side, the number of funds running similar sized short positions, expecting prices to fall has been reduced from 53 to 39. Hedge funds are running long rather than short of WTI-linked futures and options by a margin of 4.48:1 up from 2.90:1 at the end of July and the widest margin for four months.
The accumulation of net long positions exactly mirrors the build ups of hedge fund positions between October 2011 and March 2012 and earlier between November 2010 and May 2011. So far, prices have risen from just over USD 75 in late June to just over USD 95. The past is never a perfect guide to the future.
But if history repeats itself hedge funds could accumulate around another 100 million barrels of oil and US crude prices could rise another USD 10 to USD 15 with a similar increase in Brent before the market peaks.
Recent experience from price spikes in 2011 and early this year suggests prices of USD 105 to USD 110 and USD 120 to USD 125 are sufficient to produce a marked decline in growth with a lag of around three to four months which implies a price spike between August and October would start to depress GDP growth by the end of the year.
Source - Arab News.com
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