Trading oil markets used to be hard work.
You had to talk to all the major players all the time (not just message them), and learn to judge whether they were telling the truth or inventing a version of it. You had to watch for breaking economic and political news. And you needed your own supply/demand balances. Plus you had to guess how the fabled ”Belgian or New York dentist” – who traded oil futures to break the tedium of drilling teeth – might be feeling each day.
Today’s trading world is completely different:
New data from the CME highlights the change. It shows paper trading in just WTI futures averaging a record 11 million contracts each day in 2016 (each of 1000 barrels). Actual physical production, by comparison, is around only 92 million barrels per day. The speculative tail is indeed wagging the dog.
The chart above shows the current net position of the speculators, which is at a record 371k contracts. It highlights just how much they love the OPEC production cut story – it is easy to understand, and is easy money for everyone, particularly the momentum traders, as the story seems never-ending.
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