Home Commodities Oil Markets Aren’t Moving, but Traders Are Piling Their Money Into It

Oil Markets Aren’t Moving, but Traders Are Piling Their Money Into It

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  • Traders are pouring money into oil derivatives — but oil prices aren’t going anywhere, Bloomberg reported.
  • Open interest in main oil futures contracts has risen to the highest level since March 2022.
  • That’s as WTI and Brent crude have been trading within a $10 band, far off 2023’s peaks.

Oil markets aren’t moving, and prices are stuck within a narrow range — yet traders are pouring their money into oil derivatives anyway. 

Open interest across the main oil futures contracts has risen to its highest level since March 2022, Bloomberg data revealed on Tuesday. About 660 million barrels of oil derivatives have been added this year.

But amid that flurry of activity, crude oil prices have struggled to break out of a $10 range.

WTI crude is currently trading at $73.49 a barrel, lower than its high of around $78 a barrel in the past two months. Meanwhile Brent crude is at $78.85 a barrel, off a peak of $83 in the same timeframe.

The bigger-than-average uptick of oil in traders’ portfolios could be because traders like to jump in when prices are lackluster. One analyst from PVM Oil Associates said it’s “tempting to pick up the bottom,” Bloomberg noted.

In spite of the chaos in the Red Sea that has threatened to disrupt global energy flows, oil prices have actually tumbled lower from their 2023 peaks in September. A big reason is that weakness in other pockets of the market, like China’s hobbled economy and questions around OPEC’s output, have dragged prices lower. Some analysts also say the ruckus in the Red Sea is actually creating a floor beneath prices, preventing them from dropping lower.

There’s also the US oil boom that flooded markets with oil last year, weighing on prices.

The piling into derivative trades could also underscore the rise of algorithmic traders who have come to dominate the market. Investors who make swift trades based on programmed code can quickly switch from being bearish to bullish. According to the Bloomberg data, net-long positions in Brent crude and WTI derivatives recently about-faced, with Brent seeing its largest addition since 2018 last week.

But markets could 180 soon, Occidental’s CEO said this week. Vicki Hollub said that, while an oversupply of oil has kept a lid on prices, an undersupply of crude is likely to be the market theme over the coming years.

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