Article / 27 April 2015 at 12:12 GMT

COT: Brent speculative longs entering extreme territory

Head of Commodity Strategy / Saxo Bank
  • Speculative data point to heightened risk of setback
  • Long/short ratios above 6 have previously led to sell-offs
  • Stay long for now but know your exit point

By Ole Hansen

Speculative bets on rising Brent crude oil prices reached a new record as of April 21 with the net-long jumping by 8,351 lots to 271,929. Looking behind the data, however, we find a less bullish explanation. 

As the table shows both short and long positions were scaled back so despite the technical break above $60 and the heightened geopolitical risk traders opted to book profit on longs while short positions got squeezed even further.

Speculative position in Brent Crude and Gas Oil
The long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long. Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115. 

Brent crude long/short ratio
 While the focus remains on geopolitical worries the speculative data are pointing to an increased risk of a setback. A gross long of 322 million barrels only requires a small change in the fundamental or technical picture to turn into a rout. 

Speculative position in Brent Crude

Stay long for now but know your exit point would be a wise strategy.

– Edited by Clare MacCarthy

Ole Hansen is head of commodity strategy at Saxo Bank
Liam Conroy Liam Conroy
Hi Ole, Gold spiked higher at 15.00hrs any reason ?
anko anko
Hello Mr Hansen, So around this level in crude we should watch for sellingsignals in the next day or two day s Then the oil market could pullback to the 55 level, grounded on the high speculative positions.
anko anko
i saw sellingsignal so i am short in crude


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