Short positions in crude oil futures and options held by producers, merchants, processors, and users (PMPU) totaled 608,261 as of October 11, 2016, according to the CFTC’s Commitments of Traders Report. The PMPU category represents futures and options contracts held by commercial businesses that trade the physical commodity. According to EIA, this represents a nine-year high for short positions in crude oil.

Long and short positions in crude oil increased 1% (15,833 contracts) and 3% (2,381 contracts), respectively, among PMPU companies. Open interest currently stands at 939,628, 2% higher than the previous week.

A Nine-Year High for Short Positions in U.S. Crude Oil Futures and Options

Since October 24, 2014, the number of short positions has doubled by 303,540 while open interest has increased by 68%, or 380,120 contracts. This indicates both an increased interest in hedging and lower perceived breakeven prices among PMPU companies. An increase in short positions may indicate that current futures and options prices are seen as sufficient for E&Ps to generate positive returns from drilling projects.

Since 2013, long positions have decreased by 24% (104,093 contracts), while short positions have increased by 54% (213,224 contracts). Total open interest is currently 13% higher than 2013.

Initiating a short position, or selling a futures or option contract, allows the holder to lock in future price for a commodity today. Oil producers and end users use this as a way to hedge price risk and often combine long and short options and futures contracts to create ceilings and floors on their realized price per barrel.

Although producers can settle their futures contract obligations physically by delivering crude oil to Cushing, Oklahoma, most producers settle contracts through cash settlements. This involves purchasing back the short positions entered. Traders taking the other side may include refiners or other end users that typically enter into long positions.

Earlier this month Oil & Gas 360® published an analysis of futures positions entitled “Who’s Long and Who’s Short.”


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