Storming Into a New Week
Crude oil traders not only have to grapple with the aftermath of Janet Yellen but also with more storms that could impact both supply and demand. This comes after hedge funds, who started the month with a record short position, have now turn around into a record long position.
While tropical wave 99L had well respected weather forecasters very worried about a major Gulf storm, it is turning out to be not that big and is now a tropical depression in the Gulf of Mexico. The Weather Underground says, “After spending ten days in meteorological limbo-land frustrating forecasters as an “Invest”, 99L finally developed into Tropical Depression Nine, confirmed a NOAA hurricane hunter aircraft late Sunday afternoon. But the storm isn’t done perplexing us yet - the model predictions for the future intensity of the storm remain wildly divergent, even if we now have growing confidence that this storm will track into the coast of Florida north of Tampa on Thursday.” Of course we know that this storm will have at least a modest impact on oil as oil tankers will have to avoid the storms. If you consider that right now there is another tropical wave in the Gulf of Mexico and a new tropical depression that has formed in near North Carolina, as well as a hurricane in the Atlantic, you know that the seas will be rough. Still these storms could impact demand as well as power outages and the lack of travel and driving could slow demand. We continue to watch the storms development.
Well initially thought the market may have thought that Janet Yellen’s much anticipated speech was not as hawkish as one might have assumed but Fed Vice Chair Stanley Fisher in his speech at Jackson Hole, somehow made market forces focus more on the hawkish aspects of Janet’s speech. Oil is under pressure from the Fed talk as it tries to price in the possibility that just maybe the Fed can raise rates in September. The dollar and oil are moving inversely with a high degree of sensitivity this morning.
Hedge funds had record short positions at the bottom of oil. Now hedge funds have a record long position. Does that mean oil is at the top? Reuters News reported that, “Hedge funds and other speculators raised their bullish bets on U.S. crude oil in the past week by the most on record fueled by speculation that Organization of the Petroleum Exporting Countries will agree next month to a production freeze deal with non-OPEC members. Money managers, including hedge funds, raised their net long U.S. crude futures and options positions in the week to Aug. 23 for the third consecutive week to the highest since early June, data from the U.S. Commodity Futures Trading Commission (CFTC) showed on Friday. The speculator group raised its combined futures and options position in New York and London by a massive 88,924 contracts to 241,196 during the period, the biggest increase on record dating back to 2006.” Well maybe it’s that they have it right this time.
Storms will also cement the low in natural gas as well. More heat will keep injections low and we will see more challenges to meet demand this winter.