Hedge funds increased bearish oil wagers to a record as global equities fell and Iran was poised to add tot he crude supply glut. Oil dropped below $30 a barrel in New York for the first time in 12 years on January the 12th amid concern that turmoil in China’s markets will curb fuel demand.
Prices dropped further as the week progressed on signs that sanctions against Iran would be lifted, allowing a boost in crude shipments from OPEC’s fifth-biggest member. The restrictions were removed on the 16th January.
Speculators’ short positions in WTI rose 15 percent in the ending January 12th, as data from the US Commodity Futures Trading Commission show. It’s the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years.
Whilst on the face of this the news may appear to pile more pressure on the Oil price, it could in fact have the opposite effect. Extreme positioning can cause a sharp snap-back for the market, as exemplified by the Euro rally following last month’s ECB meeting. If price were to begin rising, these short positions would be forced to cover, adding additional buying pressure to the market.