The oil futures market in October continued the previous month’s downward trend on the continued availability of crude from emergency stockpiles and the easing of gasoline demand which was 2.6% lower in September compared to the previous year’s level. The weak sentiment was also inspired by the slow recovery oil operations in the Gulf of Mexico and a refinery strike in France which helped to ease sentiment for demand. The Nymex WTI front-month closed $3.17 or nearly 5% lower than the pervious week. As a result, non-commercials continued to increase their short positions at a much faster rate than their longs, increasing the net short position to 27,250
contracts. At the same time, open interest saw a healthy build of nearly 15,000 lots to close at 866,000 contracts. The bearishness continued due to the strike in France amid slower demand from US refiners, which triggered profit-taking as investors saw the market trending lower due to high gasoline pump prices. At the same time, prices received some support from the IEA report which revised down expected non-OPEC supply for the fourth quarter while revising upward its global demand growth for the coming year kept some floor for the futures market. The Nymex front-month contract prices for the second week slipped a marginal 37¢ to $63.53/b. The CFTC report for the second week revealed that the noncommercials increased shorts by a marginal 1,700 lots while reducing longs by a substantial 12,000 contracts. As a result, net shorts rose to 40,500 lots, the highest level since September 2003. Open interest was down by a hefty 14,000 lots to 852,000.
In the third week, the EIA echoed the bullish revisions to global demand and non-OPEC supplies. However the
upward momentum was short-lived due to continued crude oil supply in the US market amid a higher than anticipated build in natural gas underground storages and the improved prospects for recovery in oil operations in the US Gulf Coast as Hurricane Wilma spared the oil installations. Nymex WTI prompt month futures prices edged 33¢ lower. The CFTC’s weekly data revealed that non-commercials increased longs by a considerable
17,000 lots while the shorts saw a moderate build of 2,500 lots. As a result, net short positions narrowed to 26,000 lots, while open interest saw a healthy build of some 14,500 lots to 860,000. The market was calmed by the IEA’s announcement that it would complete its emergency stockpile release amid continuously rising natural gas stocks. Moreover, the perception that high oil prices would erode global energy demand kept the bears alive in the final week. Although concern over winter fuels ignited the bulls in the marketplace, another strong build in the US crude oil stocks helped to counter any further upward trend. The Nymex prompt month closed 76¢ lower at $62.44/b. The CFTC’s report for the final week showed that noncommercials reduced long by a marginal 3,200 while increasing shorts by a moderate 8,700 lots to 158.700, the widest level so far. Hence, the net short positions widened to 38,000 while open interest plunged a hefty 43,000 lots to 817,000 contracts. On a monthly basis, open interest averaged 134,000 contracts higher than the same period last year at 849,000 contracts, which was still 18,000 lots lower than in September. The Nymex front-month averaged $62.27/b,
representing a drop of $3.25 or 5% from September.
The forward structure fell into backwardation for the 1st/2nd month with October’s monthly average at plus 19¢/b compared to minus 36¢ in September. Moreover, the 2nd/3rd and 3rd/4th spreads also moved momentarily into backwardation in mid-month, with the 1st/2nd month spread flipping back into contango in the last decade of the month with the emergence of the new prompt month. Crude oil stocks in the USA averaged 313.5 mb in October, nearly 5 mb over September, amid higher imports and lower refinery utilization rates due to the hurricanes. Hence, the 1st/6th and 1st/12th month spreads remained in a contango of 50¢ and 33¢/b, representing a respective drop of $1.09 and 73¢ from September. As a comparison, in the forward structure for the same period last year, the 1st/2nd month spread was in wide backwardation of 46¢ with the 1st/6th month spread at $2.97/b while the weekly crude oil inventory average stood at 281 mb for the month.
