Many people believe that crude oil market prices are determined by the corporate and sovereign oligarchs that have the geographical access to produce it. Whether the prices are set by collusion or not is an open debate. One thing is certain, both the producers and consumers bring their needs and desires to the futures markets in order to guarantee their future supplies and deliveries. Therefore, following the commercial trader category in the crude oil futures market allows us to keep an eye on what the primary drivers of supply and demand currently think about the market.
Commercial traders have pared their position by 20% since November 1. More importantly, the bulk of this selling has taken place at or below $97 per barrel. This type of scenario has set the stage for all six of the crude oil trades we’ve made this year. We’ve posted the chart, along with the trades and corresponding commercial position, here.
The overnight rally in February crude oil futures has returned the market to the resistance levels it fell from on Friday. Friday’s fall was accurately predicted by the negative bias of the commercial traders’ position. I believe this morning’s rally will be capped below the recent highs around $99 per barrel thus, providing another short selling opportunity.
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