Hedge Funds Added Long Positions Ahead of OPEC Meeting

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The Thanksgiving Day holiday delayed the release of the Commodity Futures Trading Commission’s (CFTC’s) weekly Commitments of Traders report until Monday afternoon. The report indicates that hedge funds, included under the heading of Managed Money, were paring their short positions in the futures market for West Texas Intermediate (WTI) crude oil.

Hedge funds dropped 5,980 short contracts for WTI crude oil last week, and added 24,948 long contracts. The movement reflects changes as of the November 22 settlement date. Managed money now holds 333,888 long positions compared with 179,067 short positions. Open interest totaled 1,995,504. There were 49 hedge funds with large short positions last week, down from 55 in the prior week.

Among the producers themselves, short positions outnumber longs 536,489 to 268,668. The number of short positions fell by 13,906 contracts last week, and longs dropped 7,755 contracts. Among producers, short positions are used as hedges to lock-in a price and guard against a sharp decline in crude pricing.

Positions among swaps dealers show 252,134 short contracts versus 238,026 long positions. Swaps dealers added 1,273 contracts to their short positions last week and dropped 9,233 contracts from their long positions.

WTI crude futures for January delivery traded down about 3% Tuesday morning, as traders are now betting that OPEC will fail to agree on production cuts at the cartel’s Wednesday meeting in Vienna. We noted yesterday that some traders think that crude prices could tumble by up to $10 a barrel if OPEC and other large producers/exporters like Russia can’t agree on how much to cut production.

A Saudi proposal to chop up to 1.6 million barrels a day from production is almost certain to fail, but it is likely that some modest cut will be agreed to simply so the Saudis can save face. That may cause a slight uptick in prices.

Even if a larger cut could be agreed to, there is little guarantee that OPEC members will stick to it. And we won’t know if they have for at least a month or more.

What we’ve seen since late September, when Saudi Arabia reversed the course it had followed for two years and suggested a production cut, may have been nothing more than sound and fury, signifying very little at best.