Crude Oil Price Movements

Source: OPEC 1/5/2015, Location: Europe

The oil futures market
In November, the ICE Brent contract plunged 9.6% m-o-m, while the Nymex WTI contract lost 10.1% amid an enduring bearish market environment – particularly from the supply side – that has been encompassing the oil market for five months now as demand is still unable to keep pace with supply.

ICE Brent has now lost around 39% of its value since its mid-June spike of $115/b, while Nymex WTI has lost about the same. Crude oil futures tumbled as increasing supplies of crude oil from North America weighed heavily on prices. A mix of technical selling, a strong US dollar, and lower-than-expected Chinese and European economic data also pressured prices. Although growth in China's vast factory sector rose to a three-month high in October as smaller firms saw more orders, the numbers still pointed to a somewhat decelerating economy that is losing momentum. The US dollar touched seven-year peaks versus the yen and continued increasing compared to the euro, dragging on oil prices and making the commodity more expensive for buyers holding other currencies. During the last two days of the month, prices fell sharply as the market reacted to the OPEC decision to maintain the 30 mb/d crude output ceiling.

Additionally, the EU Commission saw subdued growth in 2014 and 2015, while Japanese growth stalled. Commercial users and market makers hedging in both ICE and Nymex crude options markets also have continued to amplify the price drop. The Nymex WTI front-month dropped $8.53 over the month to average $75.81/b, its weakest value in more than four years. Compared to the same period in 2013, the WTI value is lower by $1.52, or 1.6%, at $96.12/b. On the ICE exchange, Brent front-month collapsed $8.42 to an average of $79.63/b, the first time it fell below $80/b since September 2010. Year-to-date, ICE Brent was lower compared to the same period last year. It weakened by $5.87, or 5.4%, to $102.82/b from $108.69/b. Crude oil futures prices weakened in the 2nd week of December. On 9 December, ICE Brent stood at $66.84/b and Nymex WTI at $63.82/b.

Money managers’ net wagers on rising ICE Brent prices rose 21% to 65,973 contracts during the last week in November, prior to the OPEC meeting, according to figures from the ICE Futures Europe exchange. Brent fell as much as 8.4% two days later, the steepest drop since May 2011. On the other hand, producers, consumers and end users of crude became more bearish during this period. They extended their net short positions – bets on falling prices – by 3.2% to 324,393 contracts. Data for ICE options showed that the open interest in put options at $65/b on the March 2015 contract soared to 15,673 lots from close to zero at the start of November, making it one of the largest expiries of 2015.

A put is an option which gives the holder the right to sell an asset at a particular price, and amounts to a hedge, or a bet, that prices will fall. In contrast, hedge funds and money managers continue to be bearish, decreasing their net long US crude futures and options positions during the month by almost 11% this past month to 162,009 lots, according to data from the US Commodity Futures Trading Commission (CFTC). Speculative long positions in Nymex WTI dropped 1.2% to 246,860 lots, while short positions increased by 26% to 84,851 lots. Moreover, total open interest volume in both Nymex and ICE Brent markets decreased in November by 286,162 contracts to 4.09 million contracts.

The daily average traded volume during November for Nymex WTI contracts decreased by 50,658 lots to average 642,340 contracts. ICE Brent daily traded volume also fell by 73,623 contracts to 662,303 lots. The daily aggregate traded volume in both crude oil futures markets decreased by 124,281 contracts in November to around 1.30 million futures contracts, equivalent to around 1.43 billion b/d. The total traded volume in Nymex WTI and ICE Brent contracts slipped to 12.20 billion and 13.25 million contracts, respectively, over the month.

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