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The Oil Futures Market - November 2016

Source: OPEC 11/29/2016, Location: Europe

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Crude oil futures surged, trading at a 12-month-high, as the market reacted to the Algiers Accord. Crude futures returned above $50/b for the first time since late June, before dipping late in the month. ICE Brent and NYMEX WTI crude oil futures were up significantly in October for the second month in a row. Crude oil prices were also lifted in part by declining US inventory levels. In the week to 21 October, crude stocks fell by 553,000 b to 468.2 mb. This was the lowest since 22 January this year. Crude oil stocks have dropped by 27.1 mb in the last eight weeks at a time when crude inventories typically build as refineries go into maintenance, producing less gasoline and other refined products.

Nevertheless, toward the end of the month, prices came under pressure from a doubledigit rise in the US oil rig count and a strengthening US dollar, after the European Central Bank kept interest rates unchanged and US data showed home resales surged in September. Prices dipped below $50/b, as investors took profits and awaited more news on fundamental supply and demand. The restart of Britain's Buzzard oilfield also weighed on prices. Buzzard, the North Sea field that contributes to the Forties crude stream and which pumps about 180 tb/d, restarted late in the month, from a month-long planned maintenance. Significant increases in speculator short positions at the end of the month also weighed on the oil market.

ICE Brent ended October up $4.15, or 8.8%, at $51.39/b on a monthly average basis, while NYMEX WTI increased $4.71, or 10.4%, to $49.94/b. Year-to-date, ICE Brent was down $11.87, or around 21%, at $43.98/b, while NYMEX WTI declined by $8.15, or 16%, to $42.37/b.

On 10 November, ICE Brent stood at $45.84/b and NYMEX WTI at $44.66/b.

As speculators bet on price declines, commitment of traders’ data showed that money managers boosted short positions in crude futures contracts in the last week of October. There was an increase of more than 6% in short positions in two weeks for WTI and a bump of more than 10,000 short positions for ICE crude. As a result, shorts have increased by about 25% on the Brent side during that period, putting pressure on oil prices in late October. This was the first increase in money manager short positions since the week ending 20 September.

M-o-m, however, net length positions in both exchanges increased significantly on speculation that oil prices will rise when OPEC implements its planned production cut to bring forward market rebalancing. Money managers’ net length in NYMEX WTI crude jumped 86,737 contracts, or by a hefty 48%, to 268,189 contracts in the period by end October, compared to the same period in the previous month when OPEC held its meeting. During the same period, ICE Brent speculators increased net long positions in ICE Brent futures and options by 86,532 contracts, or 30%, to 376,710 lots. Total futures and options open interest volume in the two exchanges was 3% higher on the month, an increase of 175,155 contracts, rising to 5.55 million contracts.

During October, the daily average traded volume for NYMEX WTI contracts dropped 62,458 lots, down 5.4% to 1,096,161 contracts, while that of ICE Brent was 38,652 contracts, or 4.8% lower, at 765,073 lots. The daily aggregate traded volume for both crude oil futures markets decreased 101,110 contracts to 1.86 million (mn) futures contracts, slightly less than 2 billion b/d of crude oil. The total traded volume in both exchanges was lower in October, with NYMEX WTI at 23.02 mn lots, down from 24.33 mn contracts the month before, and ICE Brent at 16.07 mn lots, down from 17.68 mn contracts in September.

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