The Wall Street Journal reports,"the oil trade looks very crowded. The latest data from the U.S. Commodity Futures Trading Commission show that speculators held a net-long position—betting light, sweet crude oil prices would rise—of about 380 million barrels on the New York Mercantile Exchange as of March 18. That is close to the all-time peak reached earlier this month.
Bets on stronger U.S. oil prices rose through last year, but got an extra leg up as trouble flared in Ukraine. Yet this particular crisis looks, if anything, bearish for oil. It reinforces uneasiness over emerging markets, the center of growth in oil demand. And oil inventories aren't that low at second glance".
"In terms of days of demand covered by oil inventories, the industrialized world's current level is just one day less than the five-year average, according to Barclays. Moreover, the standoff with Russia gives the White House ample reason to release strategic stocks, which now cover more than 200 days of net oil imports from outside North America. In addition, oil supply from the Organization of the Petroleum Exporting Countries has been surprisingly strong recently, particularly from Iraq".
With so much money banking on oil prices rising, further signs of looser supply could cause a stampede out, pushing prices down sharply.
In contrast, while shale resources cap gas prices in the long term, the harsh winter has pushed seasonal inventories to a 10-year low even as the number of U.S. rigs drilling for gas has hit its lowest level since 1995, according to ISI Group.
Tempting drillers back will likely require gas futures for this year and next to rise. Yet, even though speculative length in gas contracts has risen of late, the net position overall remains short, indicating a prevailing view that prices will fall. Energy investors would do well not to follow the crowd.
