Oil Traders Poised For Price Bump: Will Middle East Tensions See Crude Climb?

Traders in crude oil futures contracts pushed their holdings up to the highest levels in nearly a year despite a distinct lack of movement of higher prices for the past couple of months.

Data from Bloomberg shows around 660 million barrels of oil derivatives have been added so far this year, suggesting traders are positioning for prices to move higher in the coming weeks.

While the price of Nymex WTI, the benchmark U.S. crude oil futures contract, was trading 0.7% higher on Wednesday at $73.83 per barrel, the price is only up 3% over the first few weeks of 2024. In early trade on Wednesday, the United States Oil Fund ETF USO was up 0.1% at $68.80.

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Positioning Shows Market Going Sideways

Yet the speculative net positions — that’s contracts added minus contracts sold — show that, as of the latest data from the Commodity Futures Trading Commission on Feb. 2, the number of contracts has fallen sharply since October.

At their 2023 peak in October — as the war between Israel and Hamas was beginning — traders pushed speculative net long positions to 350,100. At this point, WTI was trading at $95 a barrel. Net longs are now down to 196,700, according to the CFTC data.

“The oil market continues to trade in a range despite lingering geopolitical risks in the Middle East,” said Warren Patterson, chief commodity strategist at ING.

“The oil market clearly does not expect further escalation, or at least escalation which impacts oil supply,” he added.

Gas Prices Rising

This is clearly welcome news for U.S. consumers, who are currently paying an average gas price at the pump of $3.10 per gallon. That’s down from the 2023 peak of $3.89 a gallon — but still well above the average between 2018 and 2021 of around $2.50.

But wholesale gas prices are rising. This week, RBOB Gasoline rose 3.8% as demand picks up and refinery outages stifle supply.

Patrick De Haan, analyst at GasBuddy, said gasoline demand jumped to its highest level since Christmas.

“According to GasBuddy data, weekly U.S. gasoline demand jumped 4.6% from the prior week and was 4% above the average of the last four weeks,” he said.

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