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Money managers raise length in crude futures to record highs

Money mangers raised their stakes in bullish bets on NYMEX crude to record highs in the week that ended Tuesday, Commodity Futures Trading Commission data showed Friday.

The group’s length increased 36,580 contracts to 463,262 contracts, topping the previous record of 448,846 contracts set February 21.

At the same time, the size of the short position has been sharply reduced since October, revealing a bullish bias held by money managers.

That short position fell by 6,934 contracts to 30,612 contracts the week that ended Tuesday, leaving the group’s net length at 432,650 contracts.

By comparison, money manager’s net length stood at 405,328 contracts February 21, then fell as low as 105,983 June 27 a few days after NYMEX crude had sunk to around $42/b, which proved to be the low point of 2017.

Crude then stabilized around $50/b, before a rally began in October that took out $60/b by late December and has yet to run out of steam. Front-month NYMEX crude settled Friday at $64.30/b, a three-year high.

Higher oil prices have also coincided with a growing short position held by swap dealers, which likely reflects more hedging activity by producers.

Swap dealers serve as counterparties to producers in over-the-counter transactions, and then sell futures to mitigate price risk.

The short position swap dealers held has pushed further into record territory, up 34,815 contracts to 782,569 contracts the week ending Tuesday.

This move isn’t surprising in light of higher oil prices, but greater production also means there are more barrels to hedge.

US shale oil companies might also be under more stringent requirements from their lenders to lock in higher prices given investor pressure for them to live within their cash flows.

In early 2017, the short position held by swap dealers was around 330,000 contracts. At that time, the oil price had risen above $50/b.

Oil prices are even higher Friday, but also consider that US production in December was about 1 million b/d above December 2016 at more than 9.7 million b/d.

Swap dealers’ length dipped 524,000 contracts to 176,648 contracts the week ending Tuesday, putting the group’s net short position at 605,921 contracts.

A cold spell across the US that lasted from around Christmas into the first week of the New Year pushed NYMEX ULSD futures above $2.08/gal, a high last seen in February 2015.

With the cold snap lifting this week, the stage was possibly set for some length to leave the market.

Money manager length in NYMEX ULSD had risen by 19,781 contracts over a two week stretch ending January 2 to 101,127 contracts, a record high.

Instead, money managers boosted length by 7,264 contracts to 108,391 contracts. The group’s net length rose 4,354 contracts to 95,303 contracts.

After dipping to $2.0454/gal Monday, NYMEX ULSD clawed its way back above $2.08/gal, ending the week at $2.085/gal. — Geoffrey Craig, geoffrey.craig@spglobal.com — Edited by Valarie Jackson, newsdesk@spglobal.com

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