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Speculators Challenge Historic Long Positioning as Global Inventories Fall

Speculative positioning in NYMEX WTI futures is nearing historic levels as net position for Managed Money contracts climbs to 432,650 and the hedge fund ratio jumps to 15.13. Net positioning is firmly above its high of 405,328 made on 2/21/2017 and the hedge fund ratio is 0.07 away from its high of 15.20 formed on 2/18/2014. Net positioning for NYMEX ULSD futures has followed crude’s lead and increased to 95,303 from 90,949. Despite the increase in net positioning, the ULSD hedge fund ratio has fallen to 8.28 from 9.94 as shorts increased to 13,088 from 10,178.

Global inventories continue to fall on the back of OPEC supply cuts with US and European inventory estimates dropping a total of 34.28 million to 900.793 million for the month of December. Inventory estimates for China also posted a draw of 6.01 million for the month of November as levels fell from 197.62 to 191.61 million.

Going forward, there is concern that the sharp rise in oil prices since mid-2017 has cut too deep into Chinese refining margins. The current margin for refining a barrel of Dubai crude in Singapore has fallen to just below $6.00 per barrel from a December average near $7.20. According to Thomson Reuters Oil Research and Forecasts, independent Chinese refiners were responsible for 70.5 million tonnes of crude imports for 2017. This is up significantly from 2016s imports of 42.1 million. With smaller, less efficient refiners driving much of crude demand growth for China, tighter refining margins could show a marked decrease in Chinese imports.