The Crude Oil Futures Market Structure

Crude oil futures on both sides of the Atlantic fell to multi-month lows, taking ICE Brent below $60/b. ICE Brent shed almost $7 to settle way below $60/b, while Nymex WTI lost a near sharp $9 to end just above $50/b for the month. The aggressive sell-off in oil futures over the month came under pressure from a global crude surplus, rising inventories, and the financial crises in Greece and China, worsened by an indication of slowing Chinese apparent demand growth. Prices also dropped following a deal over Iran’s nuclear programme, which will eventually bring an end to sanctions and a rise in Iranian crude oil exports. The slump in US prices followed the first crude stock-builds nationally, and at the WTI pricing hub at Cushing, after eight weeks of decline. US commercial crude stocks recorded their largest weekly build in three months, rising to almost 465 mb at the end of the month. A rise in the US rig count added to the pressure on US crude prices.

ICE Brent settled down $6.99 or 11% at $56.76/b. Nymex WTI was a hefty $8.90 or 14.9% lower at $50.93/b. Compared to 2014, year-to-date Nymex WTI and ICE Brent were $39.93 and $40.49 lower at $52.98/b and $58.95/b, respectively.

Crude oil futures prices deteriorated further in the 2nd week of August. On 10 August, ICE Brent stood at $50.41/b and Nymex WTI at $44.96/b.

Hedge funds and other money managers were bearish in July as crude prices slipped by more than 10% over the month. WTI net-long positions contracted more than 50% in July, US Commodity Futures Trading Commission (CFTC) data showed. Long positions dropped to a two-year low, while short holdings climbed 55%. Nymex WTI fell by more than 20% from its June high, meeting the common definition of a bear market. CFTC data showed a m-o-m decrease in the net length of money managers in WTI futures and options by a hefty 117,219 lots to 98,933 contracts. Although not as bearish as in the WTI market, speculators also decreased net long positions in ICE Brent futures and options by 22,791 lots to 175,902 contracts m-o-m, InterContinental Exchange (ICE) data showed. On the other hand, total futures and options open interest volume in the two markets increased by 157,052 contracts to 4.91 million lots.

Daily average traded volume during July for Nymex WTI contracts increased by 23,549 lots to average 659,677 contracts, while ICE Brent daily traded volume rose by 16,493 contracts to 702,463 lots. The daily aggregate traded volume in both crude oil futures markets increased by 40,042 lots to around 1.36 million futures contracts, equivalent to around 1.4 billion barrels per day. The total traded volume in Nymex WTI was up at 15.17 million contracts, while ICE Brent was also higher at 16.16 million lots.