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The Crude Oil Futures Market Structure

Source: OPEC 11/1/2015, Location: Europe

Crude oil futures were up after two months of steep declines, despite the fact that the year-long imbalance in oil supply and demand fundamentals has not changed profoundly. Some overhung crudes found homes, while demand picked up in some regions and production was lower in others, but the glut of oil remained. This was coupled with worries about top energy consumer China, which continues to cap oil prices at the current low levels. This month, the largest gain came from Nymex WTI futures supported by positive US economic data, slowing shale oil production growth and consecutive weeks of inventory draws at the pricing hub of the contract. The global ICE Brent future contract gains were limited by China’s lower-than-expected economic performance and the ongoing oil oversupply. For the quarter, both futures plunged by almost a hefty 20% to their lowest level in six years as the glut in oil, economic turbulence in China and disappointing equity and commodity markets pressured the market.

ICE Brent ended the month up slightly by 33˘ or less than 1% to stand at $48.54/b. Nymex WTI improved m-o-m by $2.58 or 6% to settle at $45.47/b. Quarterly, Brent and WTI futures averaged $51.17/b and $46.43/b in 3Q15, down by $12.33 and $11.50 from 2Q15, respectively. Compared to 2014, Nymex WTI and ICE Brent were at $41.39/b and $50.41/b, lower by $51 and $56.61, respectively.

Crude oil futures prices improved in the second week of October. On 9 October, ICE Brent stood at $52.65/b and Nymex WTI at $49.63/b.

Hedge fund managers' overall bullish bets on US crude grew over the month. Long positions in futures and options of WTI held by money managers, including hedge funds, rose by 10,408 contracts to 266,678 lots by the end of the month, data from the US Commodity Futures Trading Commission (CFTC) showed. The group's short positions, or bets on lower oil prices, fell by 44,330 contracts to 112,764 lots as more took profit from WTI prices that firmed at around $45/b after sinking to a 6-1/2 year bottom below $38/b a month ago. As a result, money managers' net length rose by 54,738 contracts from the previous month at 99,176 lots. Similarly in ICE Brent, speculators increased net length ICE Brent futures and options by 27,531 contracts to 168,913 lots over the month, InterContinental Exchange (ICE) data showed. This comes as a result of dropping 22,708 short contracts and accumulating 4,823 longs. The long contracts stood at 268,665 lots while shorts stood at 99,208 lots. On the other hand, the total futures and options open interest volume in the two markets declined 33,414 lots to 5.05 million contracts.

The average daily traded volume during September for Nymex WTI contracts decreased by 115,424 lots to average 798,718 contracts. Similarly, ICE Brent daily traded volume slid by 115,056 contracts to 650,664 lots. The daily aggregate traded volume in both crude oil futures markets decreased by 230,481 lots to stand at around 1.5 million futures contracts, equivalent to approximately 1.5 billion barrels per day. The total traded volume in Nymex WTI was down sharply at 16 million contracts, and similarly ICE Brent was lower at 13.7 million lots.

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