The Algorithm and High Frequency Traders are driving commodity hedge funds to throw in the towel, reported by Thomson Reuters. Many commodity hedge fund traders such as Anthony Ward (aka) “Chocfinger”, known for his large bets in Cocoa and Coffee and rather successful argue it is a steady rise and has reached a tipping point that is distorting prices and creating uncertainty not only for investors, but other firms and businesses that rely on commodities to help their balance sheet. Ward was quoted, “It is too big, too quick, too dramatic and completely against the fundamentals.” It really shows that these computers are forcing more liquidity out of the marketplace and the fastest computers survive. I believe it is about time for the exchanges and regulatory bodies look further into this situation for the good of the business. On the Corn front we see a slowing down in Grain complex after yesterday’s firm rally and close led by Soybean Meal which helped spillover to the rest of the complex. We also have weather concerns in South America and here in the U.S. that helped spark the rally. In the overnight electronic session the March Corn is currently trading at 366 ¼ which is ¾ of a cent lower. The trading range has been 366 ¾ to 366.
On the Ethanol front the March contract is currently trading at 1.413 which is .004 of a cent lower. The trading range has been 1.413 to 1.410. The market is currently showing 3 bids @ 1.415 and 2 offers @ 1.419 with 7 contracts traded in the overnight electronic session and Open Interest dropping to 1,042 contracts.
On the Crude Oil front the high frequency traders ran the market lower once again before the 1:30 P.M. close as settlement prices at this time reflect on customer statements the following day driving investors out of the market. This patter has been going on for so long and so obvious and the exchange and regulators should change the settlement to reflect the 4:00 P.M. close to give real fair value. While stocks continued to trade higher and the U.S. dollar lower those markets did not flinch which only tells me what drove the Crude prices down? No News or Fake News. Something is the catalyst in doing this so frequently. In the overnight electronic session the March Crude Oil is currently trading at 5901 which is 28 points lower. The trading range has been 5973 to 5887. At 3:30 P.M. we have the weekly API Energy Stocks and whisper numbers are calling for draws.
On the Natural Gas front we had a Turnaround Tuesday with the March contract currently trading at 2.612 which is is 6 cents higher in the overnight electronic session. The trading range has been 2.625 to 2.562. We are moving closer to shoulder season and rallies may be hard to find unless a major arctic blast nobody is forecasting or unless we continue to see inexpensively cheap prices.
— Daniel Flynn
The Energy Report: The last hedge fund standing
Oil Hedge funds continue to run for the exits and is in part responsible with yesterday’s late day swoon. Yet, despite market turmoil the supply versus demand fundamentals for oil continue to be very bullish. Even the International Energy Agency (IEA), that hates to say anything bullish about oil, is acknowledging that despite their prior doubts that OPEC and their Non-OPEC coconspirators have succeeded in removing the global oil glut.
The IEA was once again to raise its forecast for oil demand growth in 2018 to 1.4 million barrels per day, from a previous projection of 1.3 million bpd. Yet they acknowledge that oil demand grew at a rate of 1.6 million bpd in 2017 so they expect a demand drop even though global growth is stronger than it was last year.
As I have written before the IEA seems to always have to raise their demand forecast because they generally underestimate demand. Perhaps it is because they represent the consuming nations and they do not want to say anything that may raise prices.
The IEA was widely criticized for their pronouncement that shale oil production would explode, which of course is a little too hyperbolic for a major agency to say. In this report they toned down their rhetoric but still said that “U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth.” Yet, because they always underestimate demand they will be wrong again. If they were right in their previous forecasts, then global inventories would be rising, not falling globally by the fastest rate in almost 6 years.
We think that oil is poised to move higher! The hedge funds have been mostly shaken out and the reality of falling supply and surging demand will help us find a base for the next leg higher!
— Phil Flynn
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