Article / 30 November 2015 at 14:07 GMT

Bullish Brent bets jumped 12% in late November

Head of Commodity Strategy / Saxo Bank
Denmark
  • Funds' bullish bets on Brent crude oil rose 12% in week to November 24
  • Price rally was driven by reports Saudi Arabia favours action to support market
  • Increase in bullish bets stemmed from shorts scaled back and longs added
  • Money managers have added exposure in seven out of eight weeks
  • With both longs and shorts elevated, continued volatility is almost assured
  • Brent forward curve remains in deep contango
Oil rig
 The oil market remains heavily oversupplied. but funds' bullish bets on Brent crude 
rose in late November. Photo: iStock


By Ole Hansen

Money managers increased bullish bets on Brent crude oil by a net 19,208 lots, an increase of 12%, during the week ended November 24. The 6% price rally seen during the week was primarily driven by news that Saudi Arabia favours measures to stabilise and support the price of oil. This came after the Opec crude oil basket dropped to a 2009 low below $40/barrel.

Speculative positioning in Brent and Gas oil
The increase resulted from a combination of short positions (red line) being scaled back from the one-year high the previous week together with long positions increasing again. While the price of Brent crude has fallen more than 7% during the past eight weeks, money managers holding long positions have been adding exposure during seven out of these weeks. 

Speculative positioning in Brent Crude oil
 
With both long and short positions being elevated, continued volatility is almost assured. Short-sellers are looking for additional price weakness driven by the persistent oversupply and the expectation it will worsen into the first quarter, not least due to an expected increase from Iran. 

Bullish bets on the other hand have remained resilient despite the recent price drop. This is driven by the belief that current prices are low enough to ensure the eventual rebalancing of the market. 

The Brent forward curve remains in deep contango. The negative yield from rolling long positions is a major challenge to those holding bullish bets. 
Brent crude forward curve
 


— Edited by John Acher


Ole Hansen is head of commodity strategy at Saxo Bank



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