Global crude oil benchmarks fell to a five year low as the investors worried that the price was kept high by speculators like hedge funds as the bet that price would turn. If that was the case, they got a reverse effect showing they don’t have much leverage on the global market. Future contracts, indicating expectations over the next month, three, six or more all dropped, with WTI and Bren sliding 4.2 percent lower even as the long positions improved. Since December 2nd, both benchmarks lost 10 percent.
Many may think the price hit a bottom so it may be a good deal to buy, but given the volatility in the market trends are hard to discern. Sharp swings are more probable to fool investors. Only in November Brent and WTI fell 18 percent, as the OPEC decided against curbing production in a bid to raise prices. This was somewhat expected as most of these countries saw there is little reason to fight shale revolution that way. This will hurt some of members fiscal sustainability.
Brent for January delivery decreased $2.88 to $66.19 a barrel in London on ICE Futures Europe exchange. This is the lowest since Sept. 29, 2009. The volume of all futures was 4.9 percent below the 100-day average. Prices were influenced by US boom that increased the domestic production most in thirty years, by wide supply coming from the OPEC and weakening global demand. All major investment banks, including Morgan Stanley, Barclays and BNP Paribas are cutting price projections. One month futures contract on WTI fell to $63.05 a barrel, lowest since summer 2009.
Hedge funds raised bullish bets on Brent crude by 31,303 contracts in the week ended Dec. 2, according to data from ICE Futures Europe. Exchange traded funds are also seeing inflows as many are thinking that the oil might recoup, unfortunately this is one of those times when fundamentals run the show so our traders should watch out here. Picking the bottom is not what you want to do here.