Thursday, March 20, 2014

Massive Speculative Positions and $80 Oil?

By Mike "Mish" Shedlock

With the slowdown in China, and global slowdown in general, inquiring minds may be wondering "where is the price of oil headed?" 
No one can answer that question with certainty, but Saxo Bank has an opinion worth considering.
Via email Steen Jakobsen, chief economist of Saxo Bank explains ...

It’s not my role to run Saxo’s official view on Crude. That job I leave to my expert Ole S. Hansen, who by the way is doing an excellent job.
This is how we see the rest of 2014 using our data:
Oil in US Dollars

This is “brave” call but when you consider the speculative size of the market – you get the “potential” on the downside.
Massive Speculative Positions
It's the Economy Stupid
  • Asia is driving global growth down led by China – due to the desperate need for rebalancing away from topline growth
  • Q1 and Q2 will be disappointing on growth. No, it’s not the weather – it’s the economy stupid! – this will drive demand down.
The one risk remains escalation of geopolitical risk but supply from Latin America, Africa and US/Canada/Mexico will flow more richly, Ole S Hansen even tells me that the supply/demand function should dictate lower oil prices.
We are long APR-16, 95.00 strike puts (0.55 cents vs. price of 1.25 now)
Safe travels,
Long Liquidation
I pinged my friend Pater Tenebrarum at Acting Man for his thoughts and he replied ... 
The idea that the positioning introduces a lot of downside risk? Absolutely. Last time a new record in net spec length was hit, crude had a pretty steep correction. Of course, the geopolitical risk is precisely the problem - there is lots of it right now. So it is unknowable when the positioning will matter, but eventually it will.

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