(WCTW) Speculators Are Back At It Again, When Will They Learn?
A lot of brainpower has gone into the oil market over the past 2-weeks to explain the radical moves we are seeing. But as we wrote in our OMF last week, the conclusion is straightforward. Here's what we said:
Physical balance is neither super tight nor super loose. We are likely right around a minor deficit.
Demand isn't amazing, but it's not awful. Supplies came in slightly higher than expected resulting in a market with a smaller than expected deficit.
Tight crude supply coupled with new refining capacity pushed refining margins lower, which resulted in reduced refinery throughput. This led to lower crude buying.
Lower crude buying prompted a fall in crude timespreads, which prompted financial speculators to dump in unison.
As flat prices fell, negative delta gamma hedging likely played a minor role in exacerbating the sell-off (not the first time we've seen this). Note: Negative delta gamma hedging is the result of producer hedging via put options.
Negative momentum begets more negative momentum, and all of a sudden, the weak price action created its own bearish narrative.
Fast forwarding to today, CFTC positioning is out on Brent and WTI, and to no one's surprise, the speculators are back at it again.