Energy Analysis
Crude Oil Prices vs. the Short Ratio for Large Traders' Commitments
The graph above illustrates
the inverse relationship between short-term crude oil prices (Light
Sweet Crude) and the short ratio for Large Speculator (Non Commercial -
Reporting) futures positions. The red line is the Friday closing price
for the oil futures contract (NYMEX / NYMX CL) that has the largest
number of outstanding contracts. (Usually the current front
month.) This information is available at many
on-line sources.
The blue line is a ratio of the relative amount of futures contracts that have been sold short by large speculators. It is calculated by dividing the number of contracts sold short, by the sum obtained by adding both long and short contracts. For example, if the number of long positions is 60,000 and the number of short contracts is 40,000, then the short ratio is: 40,000 / (40,000 + 60,000) = 0.40. (Note: One contract equals 1,000 barrels of oil. The U.S. uses about 20 million barrels (20,000 contracts) per day.)
These futures positions can be accessed on-line after Friday's close at: http://www.cftc.gov/dea/futures/deanymesf.htm
where they are listed under Crude Oil - Non Commercial.
The orange line shows the price of the most distant oil futures contract. (Usually about 6 years in the future.) Earlier this decade, distant futures were priced below near term prices in the belief that oil prices would return to the $20 range. In recent years they have traded closer to the near term price.
While I am not in the business of providing investment advice, the following correlation appears to exist. When there is a large short position (The blue line is at relatively high levels), the short-term price of oil (red line) appears to be at relatively low levels and is usually followed by an increase in the price. Conversely, when traders' short position is relatively low (The blue line is at low levels), the short-term price of oil appears to be at relatively high levels, and is usually followed by a decline in price.
(Added 12/12/03) The era of easy, cheap oil appears to be drawing to a close. As chronic oil shortages become more widespread, the historic relationship between oil futures and short-term price moves may end as the price of oil begins a relentless march higher - especially as measured in U. S. dollars.
(Added 9/22/06) The recent sharp reaction in oil prices has carried prices well below the previous least squares quadratic trendline. It has been replaced by a running 2-year linear trendline which should be more representative.
(Added 2/22/08) The dashed green line tracks a $10,000 bet between John Tierney (New York Times) and Matt Simmons (Simmons & Company International) http://www.nytimes.com/2005/08/23/opinion/23tierney.html (You may have to register with the New York Times (free) to see the above web page.)
If the price of oil averages above $200 in 2010, Matt Simmons wins the bet. If it averages below $200 in 2010, John Tierney wins. The dashed green line tracks the average weekly compound growth rate that would produce a $200 average price for oil in 2010. If the contest is even close, the world will have nearly 7 billion losers.
Since 2002, the author’s investments have been riding with Matt Simmons.
(Please see http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_S/threadview?bn=17391&tid=438&mid=440 )
As of Feb. 22, 2008, it is the author’s opinion that Mr. Simmons will win the bet.
Also please see:
The Great Rollover Juggernaut
and
The Oil Crunch and The End of Growth
For reasons unknown and for which Yahoo refuses to disclose, this entire website has been banned/blacklisted from Yahoo’s search engine. Other websites have suffered a similar fate. If you are trying to find information via Google’s search engine vs. Yahoo’s search engine, you should understand that Yahoo’s results may not include the information that you are seeking.
Return to Durango Bill's Home page
Web page generated via KompoZer
The blue line is a ratio of the relative amount of futures contracts that have been sold short by large speculators. It is calculated by dividing the number of contracts sold short, by the sum obtained by adding both long and short contracts. For example, if the number of long positions is 60,000 and the number of short contracts is 40,000, then the short ratio is: 40,000 / (40,000 + 60,000) = 0.40. (Note: One contract equals 1,000 barrels of oil. The U.S. uses about 20 million barrels (20,000 contracts) per day.)
These futures positions can be accessed on-line after Friday's close at: http://www.cftc.gov/dea/futures/deanymesf.htm
where they are listed under Crude Oil - Non Commercial.
The orange line shows the price of the most distant oil futures contract. (Usually about 6 years in the future.) Earlier this decade, distant futures were priced below near term prices in the belief that oil prices would return to the $20 range. In recent years they have traded closer to the near term price.
While I am not in the business of providing investment advice, the following correlation appears to exist. When there is a large short position (The blue line is at relatively high levels), the short-term price of oil (red line) appears to be at relatively low levels and is usually followed by an increase in the price. Conversely, when traders' short position is relatively low (The blue line is at low levels), the short-term price of oil appears to be at relatively high levels, and is usually followed by a decline in price.
(Added 12/12/03) The era of easy, cheap oil appears to be drawing to a close. As chronic oil shortages become more widespread, the historic relationship between oil futures and short-term price moves may end as the price of oil begins a relentless march higher - especially as measured in U. S. dollars.
(Added 9/22/06) The recent sharp reaction in oil prices has carried prices well below the previous least squares quadratic trendline. It has been replaced by a running 2-year linear trendline which should be more representative.
(Added 2/22/08) The dashed green line tracks a $10,000 bet between John Tierney (New York Times) and Matt Simmons (Simmons & Company International) http://www.nytimes.com/2005/08/23/opinion/23tierney.html (You may have to register with the New York Times (free) to see the above web page.)
If the price of oil averages above $200 in 2010, Matt Simmons wins the bet. If it averages below $200 in 2010, John Tierney wins. The dashed green line tracks the average weekly compound growth rate that would produce a $200 average price for oil in 2010. If the contest is even close, the world will have nearly 7 billion losers.
Since 2002, the author’s investments have been riding with Matt Simmons.
(Please see http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_S/threadview?bn=17391&tid=438&mid=440 )
As of Feb. 22, 2008, it is the author’s opinion that Mr. Simmons will win the bet.
Also please see:
The Great Rollover Juggernaut
and
The Oil Crunch and The End of Growth
Note about
Google’s/Yahoo’s search engines
For reasons unknown and for which Yahoo refuses to disclose, this entire website has been banned/blacklisted from Yahoo’s search engine. Other websites have suffered a similar fate. If you are trying to find information via Google’s search engine vs. Yahoo’s search engine, you should understand that Yahoo’s results may not include the information that you are seeking.
Return to Durango Bill's Home page
Web page generated via KompoZer