London: Trading in oil futures is now as heavy as it was in the first months of the Covid-19 crisis, according to market data and analysts, with oil bulls and bears rushing to hedge against jolts in the steady rise of prices.
Oil futures have already recovered to pre-pandemic levels, with Brent crude futures spiking US$55 in less than a year to US$70 a barrel this week, while actual fuel demand remains weak, report agencies.But speculation over when and if people will begin to travel and commute as they once did is driving duelling bets in the market and historic volumes of trade.
“What makes the current situation so pronounced is ... the duration of uncertainty around how the resolution will pan out,” said Marc Rowell, senior energy broker at Britannia Global Markets.
Total monthly contracts for US WTI crude held by producers and merchants increased to more than one million in February for the first time since May, said the US Commodity Futures Trading Commission.
Meanwhile, market open interest in ICE’s Brent futures contract reached an all-time high of 2.8 million contracts on Feb 19, topping its last record in April last year.
Open interest refers to a trader’s position in the market, long or short, and reflects their sentiment over future value.
Oil market participants engage in futures trading to mitigate risks by price changes to their business - producers generally use short positions to protect themselves from price plunges, while consumers use longs to hedge against increases.The recent surge in oil prices encouraged both producers and consumers to wade into the market with their competing bets, the US Energy Information Administration (EIA) said.
“The current prices provide an incentive for crude oil producers to secure a contract rate based on present highs,” the EIA wrote this week.
“The potential for continued crude oil price increases is an incentive for physical market buyers to secure a contract rate at present levels in case prices continue to rise.”
Underscoring the instability is a disconnect between the four-month surge in the futures price and slow physical crude sales – with global demand expected to match supply only later in 2021.