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The Oil Futures Market - April 2017

Source: OPEC 4/26/2017, Location: Europe

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For the first time this year, oil futures on both sides of the Atlantic were down m-o-m, but were up sharply for the quarter and the year. Both fell to their lowest monthly value since November 2016. Crude oil futures dropped over the month on concerns about the pace of the decline in the global crude glut and seasonal refinery maintenance. Amid worries about the pace and timing of the expected balanced market, speculators exited from record high positions on the futures markets as investors contended with bearish market fundamentals, focused mainly on growing US oil output and high US crude oil inventories.

Rising US domestic production, lower exports and seasonal lower refiner runs boosted US crude stocks to a record high of just over 534 mb in the last week of March. Some of the stock build took place at Cushing, Oklahoma, the midcontinent pricing point of WTI, where inventories are also near record highs. The US oil rig count reached 662 in the week to 31 March, up from 362 active oil rigs during the same week a year ago. The rig count increase came despite a collapse in US crude futures over the month. US tight crude oil production is expected to rise by 109 tb/d to 4.96 mb/d in April, its biggest monthly increase since October, according to a US Energy Information Administration report.

ICE Brent ended March $3.46 lower, a drop of 6.2%, to stand at $52.54/b on a monthly average basis, while NYMEX WTI decreased a hefty $3.79, or 7.1%, to stand at $49.67/b. In contrast, ICE Brent ended 1Q17 $3.51 higher, an increase of 6.9%, to reach $54.57/b on average, while NYMEX WTI increased $2.49, or 5.1%, to reach $51.78/b. Y-t-d, ICE Brent is $19.37, or 55% higher, while NYMEX WTI surged $18.16, or 54% higher.

Crude oil futures prices improved in the second week of April. On 11 April, ICE Brent stood at $56.23/b and NYMEX WTI at $53.40/b.

With the market heading into peak seasonal refinery maintenance, hedge funds liquidated their large bullish position in crude, contributing to the sharp drop in oil prices starting on 8 March. By 28 March, the net position of hedge funds in ICE Brent and NYMEX WTI had been adjusted to 617 mb, down from a record 921 mb on 21 February. This development reversed more than half of the extra net long positions accumulated between the middle of November and the end of February. In the five weeks to 28 March, hedge funds adjusted long positions by 167 mb, while adding 137 mb on the short side. The result is that the ratio of long to short positions in Brent and WTI has fallen to 3.8:1, down from a recent high of 10.3:1 on 21 February. Speculative net length in NYMEX WTI dropped 169,022 contracts, or 41%, from its level the week of 21 February, to 244,615 contracts in the week to 28 March. Similarly, in ICE Brent futures and options, speculators adjusted net long positions by 134,853 contracts, or 27%, to 372,756 lots. The total futures and options open interest volume in the two exchanges increased by 5%, or 287,698 contracts, to 5.86 million contracts, with the net length positions share dropping from last month when it reached its highest level since July 2014, back when WTI was trading in triple digits.

The daily average traded volume for NYMEX WTI contracts increased 68,217 lots, or 6.3%, to 1,148,555 contracts, while that of ICE Brent was 39,185 contracts higher, up 4.4% at 933,626 lots. The daily aggregate traded volume for both crude oil futures markets rose 107,401 contracts to 2.08 million futures contracts, or near 2.1 bb/d of crude oil. The total traded volume NYMEX WTI futures in March was significantly higher at 26.42 million contracts, up 28.7%. Similarly, ICE Bent futures volumes increased 20% to 21.47 million contracts.

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