Data indicate professional speculators and money managers are split on what the near-term holds for oil prices, but just because professional traders are not overtly one way or the other with oil does not mean they are not expressing their views.
That much is evident with the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures. USO is one of this year’s top 10 asset-gathering exchange traded funds despite having lost more than 21% of its value.
Over the past year, the Organization of Petroleum Exporting Countries has purposefully kept production high in an attempt to squeeze out high-cost producers, like the upstart U.S. shale oil industry, and help defend their market share. However, the nascent U.S. shale space is proving more resilient than previously anticipated.
“Total wagers on the price of crude climbed to the highest since the U.S. Commodity Futures Trading Commission began tracking the data in 2006. Speculators’ combined short and long positions in West Texas Intermediate crude, the U.S. benchmark, rose to 497,280 futures and options contracts in the week ended Feb. 2,” reports Mark Shenk for Bloomberg.
Many big-name banks are still bearish in their oil outlooks, at least for the first half of this year. For example, Goldman Sachs Group has also forecast oil to drop to $20 per barrel but attributes further weakness to potential storage tank limits as producers keep pumping until they completely fill up storage space and halt some production. However, Goldman also sees a new bull market being born from oil’s current bear market in the second half of 2016.