FT Alphaville " The "other reportables" oil mystery From John Kemp at Reuters on Monday (our emphasis): Hedge funds and other money managers reduced their long position in U.S. crude by the equivalent of nearly 54 million barrels of oil, the largest one-week decline since at least June 2006, according to data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday. The long liquidation was three times greater than in the "flash crash," almost exactly a year ago on May 5, 2011, when speculative longs were cut by a little under 19 million barrels. - - The ratio of hedge fund long to short positions halved from 6.2:1 to just 3.2:1, the lowest since October 2011, and far below the recent peak of 11.8, back at the height of the oil price spike in February (Chart 1). While the 54m barrel reduction in hedge fund/managed money longs is interesting in its own right, Kemp observes that just as curious are the changes on the short side. The massive net short position which was being run by banks and other swap dealers fell by 27m barrels, while commercial users dropped their net short position by 15m barrels. But the most interesting thing of all was perhaps the transfer of 27m barrels to the net long position of the mysterious "other reportables" category of the Commitment of Traders report, which now stands at a record 171m barrels. As he notes: Other reportables now have larger gross long and short positions, and a larger net position, in the market than hedge funds, CTAs and other classified as money managers. The category is now the fastest-growing participant of the WTI futures and options market, yet very little is known about what type of trader qualifes for the categorisation. The definition is simply "every other reportable trader that is not plced into one of the other three categories is placed into the other reportables category." Whoever they are, Kemp says it's clear they have become crucial liquidity providers to the system. And they seem willing to take the other side of hedge fund/managed money positions when the situation calls for it. In that sense, one could say, they provide a "shock absorber" function when supply/demand imbalances appear in the futures market, allowing prices ot move more smoothly than they might otherwise with such huge hedge fund position changes. As to what prompted the slashing of long speculative positions in May in the first place? JBC Energy make a good point about the increase in initial margins for "non-hedged" positions: The collapse happened in line with a nearly $10-per barrel fall in WTI in the week ending May 8, which may have caught speculators off guard, fuelling the massive sell off. In addition to this, the announced substantial increase in initial margins for non-hedged futures positions might have forced many market participants to revise their positions down. The CME Group has, however, received a 90-day extension for implementing margin changes and the new rules will now be implemented on August 5th. Either way, it seems oil is on a renewed down-trend for now: FT Alphaville There's always a silver lining, even in a commodities rout - FT Alphaville Brent reigns supreme - FT Alphaville This entry was posted by Izabella Kaminska on Monday, May 14th, 2012 at 10:59 and is filed under Capital markets, Commodities. Tagged with cme, commitment of traders, john kemp, oil, WTI.