The investment banks have maintained a consistent focus on oil market supply disruptions and demand surges in recent years, alongside forecasts of sharply increasing prices. We discussed their role in more detail in the recently published Chapter 3 of our new free eBook, ‘Boom, Gloom and the New Normal‘.
As the above chart from the Wall Street Journal shows, based on leaked confidential information from the US CFTC (Commodities Futures Trading Commission), the investment banks are also major players in the futures markets. It shows positions on the day studied by CFTC, 30 June 2008, when crude was at $140:
• The banks appeared to hold most contracts. more than energy companies, airlines, hedge funds or Others.
• The WSJ also reports that Goldman Sachs, one of the most prominent bulls on oil prices, held 451k long WTI contracts and 419k short contracts (a net length of 32k contracts).
• Analysts Petromatrix calculate that if the WSJ is correct, “Goldman Sachs, for its own and its clients positions, was holding 35.2% of the WTI Open Interest on June 30th 2008“.
Looking forward, many of the major supports highlighted in recent months for today’s high oil prices by the banks are disappearing:
• Libya’s 1.6mbd output should start to return to markets during H2
• China’s demand January-July was only up 300kbpd vs 2010
• Saudi pumped 9.8mbd in June, up 918kbpd versus May
• Crude oil stocks in the US Gulf are close to record levels
Plus, of course, economic slowdown reduces likely future demand growth.
Yet as Petromatrix note, large traders known as the “Large Speculators (remain) very exposed to the long side of WTI” in US futures markets.
Thus the potential for further oil price declines back to the blog’s expected $60/bbl is clearly quite high, even though the banks will no doubt remain highly bullish.