News - Oil futures pricing power quietly ‘changing hands’? The long

After OPEC+ decided on October 5 to cut oil production by 2 million barrels a day starting in November, the bullish and bearish bets in the global oil futures market escalated again. “Affected by OPEC + deep cuts in two big new change, crude oil futures market is now a speculative capital return to crude oil futures bull market, the second is a lot of information organization short cut crude oil futures positions, because they realized that as long as oil prices low, OPEC + may continue to slash production, until the price rebound to their recognition level.” A crude oil futures broker said to the reporter analysis.

However, the CTA strategy Fund and commodity investment fund have yet to return to the crude oil futures market, leaving the oil price boost from a significant OPEC+ reduction limited.” The crude oil futures broker is blunt. The main WTI contract rose from $85.4 to $93.3 a barrel after OPEC+ slashed production by 2 million barrels a day, but fell back to around $89 as the dollar index rallied over the past two days, Datayes showed. “The fear of a strong dollar is also the main reason why traditional long oil funds, such as CTA funds and commodity funds, have been slow to take advantage of OPEC+ and production cuts to return to the long oil futures market.” Helima Croft, head of global commodity strategy at BC Capital Markets. For now, they are waiting to see who wins the battle between OPEC and the strong dollar to decide the next investment decision. Zou Zhiqiang, a researcher at the Center for Middle East Studies at Fudan University, believes that Saudi Arabia and other OPEC+ countries decided to sharply cut production capacity by 2 million b/d, mainly based on their own national interests. That’s because they need oil prices to stay relatively high to provide them with more revenue to support their economies. But there is no doubt that this is damaging to American interests. Because the US is actively using the strong dollar to push down oil prices, thereby reducing US inflation.

Several Wall Street hedge fund managers told reporters it was too early to predict the outcome of the new battle for the right to set prices in the crude oil market. But what is clear is that OPEC+ will not tolerate lower oil prices for much longer to undermine its core interests. That has led a growing number of investors who bet on the dollar hitting new highs to refrain from making big bets on lower oil prices, aware of the growing policy risks. Reporters learned that on October 5, OPEC+ decided to cut crude oil production by 2 million barrels a day, which stimulated the buying sentiment in the global crude oil futures market. “In the past, the pricing power in the oil futures market was almost dominated by quantitative capital, which was completely driven by short selling of oil prices in the face of new highs in the dollar, regardless of changes in oil supply and demand fundamentals.” The crude oil futures brokers told reporters. That has led many investors who believe oil prices are undervalued to stay away. In his view, this is exactly what the administration wants. That’s because a strong dollar keeps oil prices low, which can largely dampen U.S. inflation pressures. However, with OPEC+’s decision to slash production by 2 million barrels a day, the current situation of quantitative capital dominating oil futures pricing has been “loosened”. In the past week, a growing number of speculative and event-driven funds have stepped in to hunt for bottom prices, pushing the main WTI contract back above $90 a barrel. Tonly Datayes data display, speculative capital bottom of crude oil futures to buy high tide, rise since the end of September, when the market speculation OPEC +, or a massive production, make speculative capital inflows, main drive WTI crude oil futures contract price bottomed out once more than 13%, and even a lot of speculative capital “ignoring” the dollar to contain the effect of oil prices, Jump in and buy the price of oil. Tellingly, the dollar index has only retreated from 114.78 to around 113.12 in the past two weeks, while the main WTI contract has bounced back from $76.25 to around $89 a barrel. “Behind this, more and more speculative capital is betting that oil futures will bounce back to $95- $100 / BBL on a sustained basis from the strong dollar. Because that’s what OPEC+ wants to see.”

The crude oil futures broker analysis said. They are also aware that OPEC+, facing the crushing effect of a strong dollar on oil prices, may take measures such as a large production cut to prop up oil prices, making a bottom-buying strategy more successful. Reporters also learned that in the past week, many bets on the Federal Reserve to continue the hawkish rate hike investment institutions also quietly joined the camp of buying the bottom to buy oil prices. Because they believe the Fed will have to continue its hawkish rate-hiking strategy as long as the recovery in oil prices keeps inflation high in the US, they are rewarded with fatter excess returns in the interest-rate derivatives market. Why the traditional oil bulls have been slow to enter It is worth noting that financial markets are also concerned about how much of a boost OPEC+ ‘s 200-bpd production cut will have on oil prices. “In the past two days, the strong dollar has made a comeback, sending WTI crude prices plummeting after hitting $93 a barrel.” The crude oil futures brokers told reporters frankly. The reason is that as soon as quantitative capital saw the dollar index recover, it quickly increased its short position in crude oil futures, leading to a corresponding fall in oil prices. In his view, given that quantitative capital accounts for about 30% of the trading volume in the crude oil futures market, the oil price boost from OPEC+’s drastic production cuts is likely to be “short-lived” if traditional long crude oil capital, such as CTA strategy funds and commodity funds, does not return to the crude oil futures market.

The head of a Wall Street CTA strategy fund told reporters that although they have always believed that oil prices are undervalued, they are still extremely cautious in the face of the buying profit opportunities brought by the big OPEC+ production cuts. They worry that OPEC+ may not be able to regain a say in the price of oil. The problem is that crude oil futures are priced in dollars, and as long as the Fed keeps raising interest rates and sending the dollar to record highs, crude oil prices will eventually face significant downward pressure. “What’s more, the energy supply turmoil in Europe is leading to a rapid recession in the European economy and a sharp fall in the euro exchange rate, which has led to a passive rise in the dollar index, putting more downward pressure on oil prices.” He spoke. Not many CTA strategy funds and commodity funds have returned to long positions in crude oil futures, another reason being that they were “wary” of buying new opportunities because of the steep losses in oil prices.

The reporter understands many, even if some CTA strategy fund and bottom oil futures commodity funds entry, they have the money also is quite limited, one of the important reasons, the fed raised interest rates sharply last is to leverage rising costs, make the funds available leveraged funds are greatly constrained, and it is difficult to have higher influence on oil price fluctuations. “This is an important reason why many commodity funds and CTAs prefer to miss out on this buying profit opportunity rather than take the risk, preferring to wait for the outcome between OPEC+ and the strong dollar before making their next investment decision.” “Said Stephanie Lang, chief investment officer at Homrich Berg.

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Post time: Oct-14-2022