From Reuters:
COLUMN-A closer look at Brent: Kemp
(John Kemp is a Reuters market analyst. The views expressed are his own) By John Kemp LONDON, March 7 (Reuters) - One valid criticism of some columns over the last year is that they have illustrated the impact of hedge fund positions on oil prices by focusing on WTI rather than Brent, even though Brent is clearly now the main benchmark for prices outside the central United States.Earlier:
The reason is simple: there is a longer and richer history of data on U.S. light sweet crude futures, WTI, and it is available in a more accessible format from the U.S. Commodity Futures Trading Commission's (CFTC) commitments of traders report. The CFTC publishes data only on futures and options contracts that relate to commodities registered or deliverable in the United States, which does not include the main Brent contract offered by ICE Futures Europe. Since 2011, ICE has been publishing similar data on Brent positions using the same classification system, though in a format which is considerably less easy to use and analyse. Nonetheless, it is possible to reconstruct the same time series of positions from the weekly reports published on ICE's website. BRENT POSITIONS The attached charts show how hedgers, swap dealers, money managers and other traders have varied their positions since January 2011, replicating the same sort of analysis I have published elsewhere on the WTI market. They show total positions across all Brent-linked futures trading on ICE and NYMEX.
Positioning in Brent and WTI has been broadly similar over the past two years, and the impact on prices has been the same, with two important exceptions. First, the Brent market continues to show vibrant activity by crude producers and stock holders using short futures and options positions to hedge exposure to price changes in the physical market, while short-hedging in the WTI market has withered. Between January-February 2011 and January-February 2013, the average volume of short hedging positions in WTI has fallen by half from 977 million barrels to 490 million, according to the CFTC. By contrast, short hedging positions in Brent have risen from 560 million to 813 million barrels, according to an analysis of data from ICE and the CFTC....MORE
....HEDGE FUNDS ROLE In a recent column, I suggested most of the short-term movements in Brent (and WTI) prices since mid-2010 could be traced to changes in money managers' positions rather than fundamentals. The suggestion drew an impassioned response from Professor Craig Pirrong at the University of Houston's Bauer College of Business ("Riding his Anti-Hedge Fund, Anti-Speculation Hobby Horse" March 5). Pirrong believes this "demonises" the role of the hedge funds. But it is meant to be a description rather than a prescription (here)....MORE
The Streetwise Professor Picks A Fight With Alphaville's Kaminska and Reuters' Kemp
More to come.
