As the average nationwide price of gasoline hits $4, Bloomberg is reporting that oil speculators have reduced their bets on the rising price of crude by as much as 80 percent.
[img]542|left|||no_popup[/img]
According to data released by the New York Mercantile Exchange, so-called net long positions in crude oil have fallen to just over 25,000 open positions from a high of more than 125,000 positions in mid-May.
This is an indication that market players believe that the price of crude will continue to correct. Today, crude oil futures have traded as low as $125, down nearly $10 from its recent record high of more than $135.
This market adjustment comes on the heels of a federal government inquiry into market price manipulation.
Think About the Timing
As if on cue, this change of speculative direction started within days of the special hearing before the Senate’s Energy Subcommittee. Most regulatory analysts believe that the inquiry by the Commodities Futures Trading Commission into price manipulation will be stymied by this market pull-back because it makes it more difficult to identify the market players, especially because most of the speculative trading was conducted by hedge funds that are not subject to futures reporting requirements.
This means that their clients can trade in enormous blocks without worry of identification.
At the same time, there have been recent reports that the Chinese have opened their own strategic petroleum reserve and are paying premium prices to stockpile light sweet crude.
Are These Olympian Ethics?
It is rumored that to reduce air pollution during the Beijing Olympics, they have been trying to obtain as much of the light sweet grade as the market can supply. Various petroleum intelligence services have reported the diversion of dozens of supertankers bearing light sweet crude to China while hundreds of vessels carrying the higher sulphur crude are moored, awaiting buyers.
If the market finds these reports credible, the end of the Beijing Games may trigger a further crude oil price retreat in August.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
