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The Oil Futures Market – December 2016

Source: OPEC 12/15/2016, Location: Europe

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Crude oil futures were volatile over much of November, driven mainly by questions regarding the implementation of the OPEC adjustment agreement. The sharp increase in oil supplies by OPEC and non-OPEC also contributed to uncertainty, as they revived concerns that the persistent oversupply seen throughout 2016 would carry on into 2017. EIA data showing a 14.4 mb increase in US crude stocks in the final week of October, the largest weekly build on record, came as a major surprise, pushing prices down further. Oil futures were also pressured by the surprise outcome of the US presidential election earlier in the month. The continued strengthening of the US dollar also kept crude oil prices under pressure.

The oil complex soared more than 10% at the end of the month, with futures for both Brent and WTI above $50/b. ICE Brent traded above $54/b, as prices continued to surge following OPEC’s agreed production adjustment announced on 30 November.

ICE Brent ended November lower by $4.31, or 8.4%, to average $47.08/b for the month, while NYMEX WTI dropped $4.18, or 8.4%, to average $45.76/b. Compared to the same period last year, ICE Brent was $10.71, or 19.5%, lower at $44.26/b y-t-d, while NYMEX WTI declined by $7.13, or 14.3%, to $42.68/b.

Crude oil futures prices improved in the second week of December, with ICE Brent standing at $55.72/b and NYMEX WTI at $52.98/b on 13 December.

Speculators showed a more bearish mood as money managers boosted short positions on crude futures contracts throughout the month. The number of short positions for WTI almost tripled over the month from 56,563 lots at the end of October to 163,232 contracts at the end of November, representing an increase of 106,669 lots. Short positions in ICE Brent crude also surged by 86,566 contracts to reach 147,427 lots, which means that shorts have increased by about 142% on the Brent side in a period of just four weeks. This has translated into a significant month-to-month decline in net long positions in both exchanges.

Money managers’ net length in NYMEX WTI crude dropped 79,865 contracts, or a hefty 30%, to 188,324 contracts in the period from the end of October to end November just ahead of the OPEC meeting on 30 November. In ICE Brent futures and options, speculators also decreased net long positions by 83,946 contracts or 22% to 292,764 lots. The total futures and options open interest volume in the two exchanges was also lower by 2%, or 114,346 lots, to 5.43 million contracts.

During November, the average daily traded volume for NYMEX WTI contracts surged 18.9%, or 207,391 lots, to 1,303,552 contracts, while that of ICE Brent was 167,914 contracts higher, an increase of 21.9%, to 932,987 lots. The aggregate daily traded volume for both crude oil futures markets swelled 375,305 lots to 2.24 million futures contracts, representing slightly more than 2.2 billion b/d of crude oil. The total traded volume in both exchanges was significantly higher in November at 27.4 million lots for NYMEX WTI and 20.5 million contracts for ICE Brent.

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