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The Crude Oil Futures Market

Source: OPEC 9/23/2012, Location: Europe

Following the substantial 7-10% m-o-m rally in August, crude oil futures prices have barely moved in September. Both Nymex WTI and ICE Brent front-month inched up marginally by around half a percentage point over the month. In addition to the risk premium associated with ongoing Middle East geopolitical tensions, crude oil prices enjoyed a significant boost earlier in the month in hopes of stronger oil demand sparked by the new bond-buying programme of the European Central Bank and the US Federal Reserve’s QE3.

Thereafter, prices have fallen on increasing concerns about the global economy and oil demand growth. Front-month Nymex WTI has dropped over $8/b since the Fed announced QE3, eroding some of the hefty prior bounce from the contract’s June lows. ICE Brent, affected more by geopolitical issues and production problems in the North Sea, has fallen less but had bounced more.

Ample supply, as well as a possible release of strategic oil reserves and major producers’ announcements to increase production to cool down prices also kept a lid on prices during the second half of the month. For the quarter, crude prices were also relatively flat compared to a drop of nearly 10% in the previous quarter. Maintenancerelated curbs to North Sea output helped lift oil prices in the quarter. Adding support were measures taken by the US, Japanese and European central banks to address global economic growth.

In September, ICE Brent front-month prices improved slightly by 36¢, or around 0.3%, to settle at $113.03/b, the highest monthly average since April. WTI front-month also inched up marginally by 0.42% or 40¢ to average $94.56/b, the highest settlement since May. Front month ICE Brent increased 58¢ to average $109.48/b in the third quarter, whereas Nymex WTI slipped $1.27 to $92.22/b. Moreover, compared to the same period last year, ICE Brent front-month average was 0.6% higher at $112.20/b compared to last year level of $111.54/b. The WTI front-month year-to-date average value is higher than that of last year by 72¢ at $96.16/b, indicating a 0.7% improvement from the same period level last year, after two months of lower year-to-date averages. On 9 October, Nymex WTI settled up at $92.39/b and ICE Brent moved up to $114.50/b.

Data from the US Commodity Futures Trading Commission (CFTC) showed that over the month of September, money managers reduced their net long positions from the record-high levels seen during the last two months. This in line with the fall in crude oil prices, particularly in the second half of the month, amid continued widespread public debt concerns in the Euro zone and sluggish economic growth prospects in the US and elsewhere. Hedge funds and other large investors decreased their net long futures and options positions on the New York Mercantile Exchange (Nymex) by 14,709 contracts to 177,762 at the end of the month. The bullish sentiment of the speculators’ activities in ICE Brent crude oil futures also lessened as net longs decreased 758 lots to stand at 107,127 contracts at the end of September. In total, speculators have reduced their combined net long positions in the two main crude oil futures market, ICE and Nymex, by 5% to 284,889 contracts from 300,356 lots, at the end of September. Meanwhile, the combined open interest increased by 115,735 contracts to over 4 million of futures and options contracts, which was attributed to the increase in short positions. The Nymex WTI accounted for more than 60% of the total.

Total traded futures volume in September for WTI Nymex futures contracts decreased further by 148,629 lots to 11.03 million contracts (366 mb/d). Although ICE Brent also decreased by 44,656 contracts to 12.1 million contracts, it still outnumbered WTI.

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