Managed money net long futures and options positions on the ICE market in Brent have been on a steep uptrend since the middle of November, apart from small blips in the middle of December and the middle of January, increasing from 77,501 positions on 13 November to a near record 192,154 positions as of 12 February.
Until the middle of January, the Brent price was broadly flat through this period, but has since increased from about USD 110/bbl to around USD 118/bbl, coincident with a sharp, increase of just under 50,000 net speculative positions since 15 January.
The most recent data shows a small WoW drop of 41 net speculative positions amid signs that the pace of increase in oil prices might be easing.
Equivalent net speculative positions on the CFTC in NYMEX light sweet crude also saw a sharp increase from the middle of November, rising 121,513 positions to 221,534 positions as of 12 February.
While the absolute increase on the CFTC has been larger than for ICE, net positions remain considerably below previous records on the CFTC and the increase has been proportionately less steep than for ICE. We think this continues to reflect a structural shift to hedging in Brent away from WTI. It might also reflect the more volatile trade in WTI where the initial sharp drop in the WTI discount to Brent on the expansion of the Seaway pipeline has since largely been reversed as a result of problems maintaining the expanded capacity in service. That could also account for the earlier flattening off in net speculative positions seen on the CFTC over the last four weeks as compared with ICE.
Recently updated forecasts from the IEA, EIA and OPEC tend to show oil supply/demand balances that have turned out to be tighter than previously expected. Nevertheless, markets continue to appear to be in substantial surplus, a position that is likely to become more extreme as we approach the second quarter, unless OPEC cuts output further.
The apparent flattening off in speculative positions in the Brent and WTI markets might indicate a degree of trepidation on the part of traders with respect to that development, we expect.