Speculators’ reluctance despite steep fluctuations

By: Faisal Faeq

Oil prices ended a historic sharp volatile week lower. Brent crude price ended the week lower at $112.67 per barrel. WTI ended the week lower at $109.33 per barrel. Brent / WTI spread has widened to $3.34 per barrel.

The latest figures from the Commodity Futures Trading Commission (CFTC) on March 8, 2022, showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) at 486,686 contracts, down by 3,936 contracts from the previous week (1,000 barrels for each contract).

The slight drop in longs after a record intense, volatile week is a bit surprising. Oil prices ended the week lower though it was not expected to trend lower than the previous week. A $20 downward movement within a week is a large swing.

A week earlier, it was thought that speculators were back, but they seem to have left again. This shows that we are living in a very volatile environment with immense uncertainty. Therefore, speculators seem to have sold their positions as it is risky to go either way: long or short (from an investment point of view).

So far oil prices have responded to geopolitical factors frighteningly; talk about oil price volatility seems to be in fashion. Price volatility became much steeper in the past two weeks. This sets the stage for speculative activities, but speculators are so reluctant and shying away.

Prices’ downward momentum mean speculators have a minor role in oil price movements, though, in truth, the oil price slump followed equity market weakness. More importantly, however, speculative flows have started moving toward the short side in crude oil.

Consequently, there might be some further softening to come out of crude futures. Even if someone thinks that net short positions might start building and mostly likely bottoming out in the coming weeks, speculators will take advantage of the more enormous swing in oil prices on the upward movement if the $130 wasn’t the ceiling.

Faisal Faeq

Energy Adviser (former OPEC and Saudi Aramco)

Twitter: @FAISALFAEQ