After OPEC+ decided on October 5 to cut crude oil production by 2 million barrels per day from November, the long-short game in the global crude oil futures market escalated again.
"Affected by OPEC+ substantial production cuts, there are two new changes in the crude oil futures market, one is that speculative capital has returned to the long market of crude oil futures, and the other is that many asset management institutions have cut short positions in crude oil futures, because they realize that as long as the oil price is low, OPEC+ may continue to significantly reduce production until the oil price rises to their recognized level." A crude oil futures broker to the reporter analysis said.
The latest data released by the US Commodity Futures Trading Commission (CFTC) showed that as of October 4, the net long position held by speculators in Brent and WTI crude oil futures increased by 53,179 contracts from the previous week to 373,467 contracts, the highest value in the past 11 weeks.
"However, CTA strategic funds and commodity investment funds have not yet returned to the oil futures market, so the impact of a significant reduction in OPEC+ on oil prices remains limited." The oil futures broker was blunt.
According to Datayes, after OPEC+ significantly reduced its daily crude oil production capacity by 2 million barrels, the main contract price of WTI crude oil futures rose from $85.4 per barrel to $93.3 per barrel, but with the recovery of the dollar index in the past two days, the main contract price of WTI crude oil futures fell back to near $89 per barrel.
"Fear of a strong dollar is also the main reason why traditional oil bullish capital such as CTA funds and commodity funds have been slow to take advantage of the OPEC+ production cut effect to return to the oil futures bullish market." Helima Croft, global head of commodity strategy at BC Capital Markets. At present, they are waiting to see who can finally win the battle for the right to price crude oil between OPEC and the strong dollar, and then decide the next investment decision.
Zou Zhiqiang, a researcher at the Middle East Research Center of Fudan University, believes that the reason why Saudi Arabia and other OPEC+ countries decided to significantly reduce crude oil production capacity by 2 million barrels per day is mainly based on their own national interests. Because these producers need oil prices to stay relatively high, so that they can obtain relatively rich fiscal revenues to support their national economic development. But it has certainly damaged US interests. Because the United States is actively using the strong dollar to push down oil prices, thereby bringing down U.S. inflation.
A number of Wall Street hedge fund managers told reporters that it is impossible to predict the victory and defeat of the new struggle for the right to price the crude oil market. But the indisputable fact is that OPEC+ will no longer tolerate persistently low oil prices to undermine its core interests. This has led to a growing number of investors who bet on the dollar hitting new highs to refrain from making big bets on lower oil prices, as they recognize the growing policy risks of doing so.
Oil futures pricing power quietly "changing hands"?
On October 5, OPEC+ decided to significantly reduce crude oil production by 2 million barrels per day, which invisibly stimulated the buying sentiment of the global crude oil futures market.
"Originally, the pricing power of the crude oil futures market was almost dominated by quantitative capital, which completely aimed at the US dollar hitting new highs and constantly selling oil prices for profit, without considering changes in the fundamentals of crude oil supply and demand." The above crude oil futures brokers told reporters. This has led many investors who believe oil prices are undervalued to stay away.
In his view, this is exactly what the US government wants most. Because the strong dollar keeps oil prices low, it can greatly reduce inflation pressures in the United States.
However, with the decision of OPEC+ to significantly reduce crude oil production capacity by 2 million barrels per day, the current situation that quantitative capital dominates crude oil futures pricing has been "loosened".
Over the past week, more and more speculative capital and event-driven funds have entered to buy down oil prices, pushing the main contract price of WTI crude oil futures back above $90 per barrel.
Datayes data show that speculative capital bottom-buying of crude oil futures rose from the end of September, when the market rumor OPEC+ or will significantly reduce production, so that speculative capital influx, pushing WTI crude oil futures main contract quotes once bottomed out and rebounded more than 13%, and even many speculative capital "ignored" the strong dollar on the oil price curbing effect. Resolutely join the buying camp.
One of the obvious signs is that in the past two weeks, the dollar index has only fallen from 114.78 to around 113.12, but the main contract price of WTI crude oil futures has quickly recovered from $76.25 / barrel to near $89 / barrel.
"Behind this, more and more speculative capital is betting that crude oil futures will break away from the strong impact of the dollar and continue to recover to $95-100 / barrel." Because that's the price OPEC+ wants to see." The crude oil futures broker analysis said. Because they also realize that in the face of the oppressive effect of the strong dollar on oil prices, OPEC+ may take large-scale production cuts and other measures to support oil prices, so that the strategy of buying oil prices at the bottom has a higher chance of winning.
The reporter also learned that in the past week, many investment institutions that bet on the Federal Reserve to continue to raise interest rates hawkish also quietly joined the camp of buying oil prices. Because they believe that as long as the oil price continues to recover to drive high inflation in the United States, the Fed will have to continue its hawkish rate hike strategy, so that they can get more generous excess returns in the interest rate derivatives market.
Why traditional crude oil bulls have been slow to enter
It is worth noting that OPEC+ significantly cut crude oil production capacity by 200 barrels per day, in the end, how long and how high can bring the boost effect of oil prices, the same concern of the financial market.
"In the past two days, the strong dollar has come back again, causing WTI crude oil futures quotes to drop sharply after hitting $93 / BBL." The aforementioned crude oil futures broker admitted to reporters. The reason is that quantitative capital quickly increased short positions in crude oil futures as soon as it saw a rebound in the US dollar index, leading to a corresponding decline in oil prices.
In his view, considering that quantitative capital accounts for about 30% of the trading volume in the crude oil futures market, if traditional crude oil long capital such as CTA strategic funds and commodity funds have not returned to the crude oil futures market, the oil price boost effect brought about by OPEC+ substantial production cuts is likely to be "short-lived."
A head of a Wall Street CTA strategic fund told reporters that although they have always believed that oil prices are undervalued, they are still extremely cautious in the face of the opportunity to buy gains brought about by OPEC+ sharp production cuts. Because they are concerned that OPEC+ may not be able to regain the pricing power of the crude oil market. The crux of the problem is that crude oil futures are priced in dollars, and as long as the Federal Reserve continues to raise interest rates sharply and the dollar continues to hit new highs, crude oil prices will eventually face enormous downward pressure.
"What's more, the energy supply crisis in Europe is leading to a rapid economic recession in Europe and a sharp fall in the euro exchange rate, which intangibly leads to a passive rise in the US dollar index and puts more downward pressure on oil prices." He speaks bluntly. At present, few CTA strategic funds and commodity funds have returned to the long market of crude oil futures, another reason is that the previous sharp decline in oil prices has caused their net worth to lose a lot, leading them to be "cautious" about new opportunities to buy, fearing that they will tread again.
Reporters learned that even if some CTA strategic funds and commodity funds into the bottom of the crude oil futures, their investment funds are quite limited, one of the important reasons is that the Federal Reserve continued to raise interest rates is making the cost of leverage financing rising, so that the leverage funds available to these funds are greatly restricted, it is difficult to have a higher impact on oil price fluctuations.
"This is also an important reason why many commodity funds and CTA funds would rather miss this opportunity to buy gains than take risks, preferring to wait for the outcome between OPEC+ and the strong dollar before deciding on their next investment decision." Stephanie Lang, chief investment officer at Homrich Berg.
