Brent and wheat markets vulnerable to change in sentiment

Brent crude and wheat futures prices are particularly vulnerable to snap change in sentiment.

A look at market positioning in among managed money accounts in commodity futures and options markets can give a flashing red warning light that a market is too heavily bought or sold and so vulnerable to a sell-off, or a rebound.

Brent crude positions are currently flashing red with the net position sharply higher relative to its 5-year peak. The ratio of long positions to short positions currently looks extreme at 6.4 longs to 1 short. Previous occasions when the ratio has reached 6 has been followed by a sell-off in Brent crude prices.

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The fracklog is coming

Could U.S. oil production add an extra 1 million b/d by end 2015? Oil traders have perhaps understandably focused on the minutiae of weekly changes in rig activity, oil production and storage levels in their quest to understand how the imbalance in oil markets will be resolved. However, the existence of a quasi underground storage, known as “fracklogs” creates an additional layer of uncertainty. Far from the pumping of this crude from U.S. shale wells being just an economic decision, oil production may rise (and rise sharply) due to a legal requirement too.

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Shell shocked: Why bid for BG is unlikely to herald oil prices ‘bottoming out’

Oil majors have a mixed record of timing the bottom in oil prices. That’s the message from the last 35 years of oil price and merger and acquisition (M&A) activity in the sector. While much of the attention in recent days has focused on acquisitions by BP, Exxon, Total and Repsol in the late 1990’s (as Brent crude prices bottomed out close to $10 per barrel), there was also a flurry of M&A activity in the mid-1980’s, just before oil prices slumped by almost 70%.

Brent crude prices and key oil mergers/takeovers
$ per barrel

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