crude oil futures 101

crude oil futures 101

November 1st, 2018

Investors are growing increasingly pessimistic about the direction that the oil market is heading in, and their negative outlook is helping to drag down crude oil prices.

Hedge funds and other money managers continue to slash their bullish bets on oil futures, a trend that has led to a dramatic reshuffling in the makeup of investor positioning. For the week ending on October 23, long-to-short bets fell to a 4:1 ratio, a sharp reduction from the nearly 26:1 makeup in July, according to the Wall Street Journal.

The liquidation of bullish bets shows a sharp reversal in market sentiment. Over the summer, sanctions on Iran combined with the temporary outage in Libya led to fears of a supply shortage, pushing investors to stake out ever-increasing volume of bullish bets on crude futures. That sentiment stalled in August as Turkey’s currency crisis exploded, and a range of other emerging markets saw their economies hit the skids.

Bullish sentiment renewed in September as Iran sanctions loomed, and the disruptions to Iran’s oil exports proved to be worse than previously expected. However, a month later, the global economy is showing some worrying signs of a slowdown, while Saudi Arabia has pledged to increase production to cover for any shortfall left over by Iran.

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