The Oil Futures Market - September 2016

M-o-m, the two key oil futures performances were mixed in August as ICE Brent increased slightly, while NYMEX WTI was unchanged. On both sides of the Atlantic, oil futures were mainly supported over the month as speculation intensified over potential action by producers to curb excess crude supply.

The near-term projected balancing of the market, a weaker US dollar and short-lived draws in crude and gasoline stocks in the US have helped to ignite a momentary rally in oil prices. Several reporting agencies projected that the oil market should start to balance as early as 2H16. The rally was also driven by short covering by speculators, including hedge funds and other money managers, who had amassed record short positions. This rally in futures broke later in the month on rising international crude production, a surprise build in US crude stocks, worries about Chinese crude demand following record gasoline and diesel exports, and the rising US oil rig count. This has put back into focus excess supply that has pushed stockpiles to record highs around the world.

The strengthening dollar following a speech by US Federal Reserve Chair Janet Yellen, indicating the possibility of an interest hike in the near future, also weighed on crude futures. NYMEX WTI came under more pressure on significant crude stock builds, both at Cushing and in the US as a whole, over the month. ICE Brent ended August up 62¢, or 1.3%, at $47.16/b on a monthly average basis, while NYMEX WTI stayed unchanged at $44.80/b. Compared to the same period last year, y-t-d ICE Brent lost $15.14, or 26.3%, at $42.48/b, while NYMEX WTI declined $10.85, or 21%, to $40.84/b.

Crude oil futures prices improved in the second week of September. On 9 September, ICE Brent stood at $48.01/b and NYMEX WTI at $45.88/b.

Net long positions in managed money soared in August in crude futures and options on both the NYMEX and ICE. The increases in net length were largely the result of a massive decrease in shorts on the back of news that major oil producers would meet informally to discuss how to stabilize the market. Managed money short positions on the NYMEX were reduced by more than 84,000 positions, the greatest change in at least 10 years. The extent of short covering appears to have amplified the increases seen in the flat price over last week.

Relative to the end of the previous month, speculators increased net long positions in ICE Brent futures and options by 99,671 contracts, or 35%, to 388,207 lots, by the last week of August, exchange data from ICE showed. On the other hand, money managers almost doubled their net long US crude futures and options positions, increasing by a hefty 99,847 lots, or 83%, to 220,403 contracts, the US Commodity Futures Trading Commission (CFTC) reported.

Meanwhile, the total futures and options open interest volume at the two exchanges increased from 2.8%, or 146,997 contracts at the end of July to 5.4 million contracts at the end of August.

During August, the daily average traded volume for NYMEX WTI contracts increased by 60,123 lots, up 6.4%, to 1,002,196 contracts, while that of ICE Brent was 55,090 contracts lower, down 7.2%, at 710,523 lots. The daily aggregate traded volume for both crude oil futures markets increased by 5,033 contracts to about 1.71 million futures lots, equivalent to around 1.7 billion barrels per day. The total traded volume at both exchanges was higher in August by 23.05 mn and 16.34 mn contracts in NYMEX WTI and ICE Brent, respectively, as there were three additional trading days compared to July.