Oil bears and bulls grapple as market puzzles over pandemic exit

Trading in oil futures is now as heavy as it was in the first months of the COVID-19 crisis, according to market data and analysts, with oil bulls and bears rushing to hedge against jolts in the steady rise of prices. Oil futures have already recovered to pre-pandemic levels, with Brent crude futures spiking $55 in less than a year to $70 a barrel this week while actual fuel demand remains weak. But speculation over when and if people will begin to travel and commute as they once did is driving dueling bets in the market and historic volumes of trade.

Total monthly contracts for U.S. WTI crude held by producers and merchants increased to more than 1 million in February for the first time since May, according to the U.S. Commodity Futures Trading Commission. Meanwhile, market open interest in ICE’s Brent futures contract reached an all-time high of 2.8 million contracts on Feb. 19, topping its last record in April last year. Open interest refers to a trader’s position in the market, long or short, and reflects their sentiment over future value. Oil market participants engage in futures trading to mitigate risks by price changes to their business – producers generally use short positions to protect themselves from price increases while consumers use longs to hedge against decreases.

The recent surge in oil prices encouraged both producers and consumers to wade into the market with their competing bets, the U.S. Energy Information Administration (EIA) said. Underscoring the instability is a disconnect between the four-month surge in the futures price and slow physical crude sales – with global demand expected to match supply only later in 2021.

Oil bears and bulls grapple as market puzzles over pandemic exit, Reuters, Mar 17