Big Bets on Oil Stalwart Despite Bearish Signals

Oil traders for the last two weeks have shrugged off reports that US stockpiles are brimming at their largest levels ever recorded, as the market continues to bet that crude prices will climb higher.

Oil has maintained its buoyancy because the market is betting that cuts by the Organization of Petroleum Exporting Countries will largely rebalance the oil market, despite continued production increases from shale formations in the United States, Reuters reported.

A second consecutive massive build in US crude stockpiles on Wednesday left the market relatively unimpressed, as it was little changed during the session, as the market awaited further evidence that OPEC cuts were in effect. As of last week, noncommercial traders had a net long position of 477,000 US crude contracts, just short of the previous week's level that represented a record long position in oil futures, according to data from the US Commodity Futures Trading Commission.

That speculation has helped crude prices remain supported in recent weeks whenever the market has threatened to slip to lower levels, traders said. 

The two highest-volume trading days of 2017 occurred when US crude rebounded from lows around $51 a barrel as buyers came into the market. US oil has not dropped below $50 a barrel since early December.

While speculation by hedge funds and other money managers is contributing to this net long position, it may also be driven in part by the start of institutional investors' return to oil markets after an absence during the crude oil rout.

"It seems that a significant amount of the 'net length' likely belongs to passive institutional investors, which are taking a keener look at commodities and energy once again after several years of absence," Energy Aspects wrote in a research note.