Extreme positioning- spot check
The lift is there.
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My first midweek post for the oil report. Let’s check in on price.
Shorts are exhausted.
This is the chart you all got for free on Monday, normally this is only available to monthly paid subscriptions.
How we are doing?
Positioning
Given the positioning coming into this week, we were primed for a bounce OR a spectacular wash out on the lows. Specs (non-commercials) have been EXTREMELY short. So I was able to tell in advance that something was going to break. The overhanging meeting of leaders at the White House was enough to keep us attentive.
If we use our internal C.O.T tool, we can see that Non-coms are seasonally about 3 weeks early.
As a seasonal cal spread trader, I tend to observe a seasonal run-up in early September, that abruptly meets sharp reversals down. The run down goes through to early December. You can see this from the seasonal chart above. There are clear drivers behind this you must understand and watch for as a seasonal trader
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Non-comms short side data as of the last C.O.T report is in the 96th percentile, i.e above 2 standard deviations. Only 4% of the time, higher readings happen. To the betting type- a bookmaker would give you 1/24 odds on this happening. Not insane and in oil world, a 2++, even 3++sigma event is par the course. This is why it is considered one of the hardest markets to trade out there.
Wake of Iran attack/ U.S Counter bombing.
While trawling the data (something I like to do more than I let on), I noticed that there was this bump in short side open interest. The data was captured by the CFTC for the C.O.T report on June 17th. We notice a bump up in short side interest from both commercials and non-coms.
They knew that the elevated risk was not sustainable and non threatening to supply. Front month spreads blew up to almost $2 for a spread that in an ‘efficient market’, should be about $0.80cent.
This was in the middle of what is now committed to history as the 12-day war.
June 17th was the day that Trump, when discussing Director of National Intelligence Tulsi Gabbard, said ‘‘I don’t care what she said’’ about Iran not having nuclear weapons capabilities. Probably the biggest day of Geopolitical risk of the year so far. It was what could be considered the zenith day of the actual 12 day war, with Tel Aviv getting pumelled by hypersonic missiles that impacted with breathtaking speed, leaving the Iron dome system punchdrunk.
On the 23rd, The U.S bombed Iranian nuclear facilities. The U/V WTI spread topped out and with an extreme WoW change in short side positioning- the technical C.O.T read, was that the risk was being sold.
The point here is, that not only did non coms get short on the 17th of June, but they have actually built on it and held net short since. With the settling of the U/V spread coming this week, it would make sense that we see this short side interest unwind on the next C.O.T. report.
I’ll be sure to be looking at it with our fine tooth comb and release the findings on Monday morning before the oil pitt open.
I like the longs. But as always, this is oil town. Be ready for anything.
Happy hump day folks.
Tim
Tim