Oil Speculators are All In ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO)

News stemming from the oil space is fluid and dynamic.  The price of oil and oil related stocks, such as ProShares Ultra DJ-UBS Crude Oil (NYSEARCA:UCO), Proshares Trust II (NYSEARCA:SCO), iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL), United States Oil Fund LP (ETF) (NYSEARCA:USO), and others have been affected by this news, but the immediate a overwhelming consensus is bullish.

According to the April OPEC report, which was released this morning, "... speculators have amassed a near record number of bullish bets on increasing oil prices. By the end of the month, they held a net long position equivalent to almost 580 mb."

Sign Up for Free Trial

In that report OPEC also discussed the recent increase in price, and although they suggested that minor issues existed which had positive influences on price, it was really the supposition by those speculators that a deal would be reached by major oil producers to cap production, reflecting Opec's observation that the price increases were not driven by market conditions for oil itself.

By definition, speculative investors are fast money, they tend to buy and sell on the heels of news, and they tend to react quickly.  This presents an interesting situation given the meeting between Russia, Saudi Arabia, and the rest of OPEC and other oil producing countries this coming weekend.  The speculation leading up to this meeting has caused oil to run higher, and expectations that a deal will be reached to cap production are running high along with it, but seasoned market veterans consider this a warning sign, a sign that buyers are 'all in.'

With near record bets on the table, speculators have already voiced their opinion, and if they do not get exactly what they want, or if there's no deal at all, the risk of them selling the news, news that was after all the catalyst to their accumulation of these nearly 580 million barrels of oil, would be extremely high.

That begs the question, what are the chances that a deal to cap production at January levels is not reached?  It also begs the question; would a production cap really matter anyway?

We have discussed this issue in our Special Reports, and we have addressed the speculation that the deal had already been reached between Russia and OPEC from an Interfax News release that was issued on April 12 without an identified source, and we addressed the credit rating downgrade of Saudi Arabia by Fitch too.

In addition no, it is important to note that Saudi Arabia's oil minister vocalized overnight that the thought of a production cut by Saudi Arabia should be completely discounted from all conversations.  That does not necessarily mean that they will not reach a deal, but it continues to demonstrate the hard-line that Saudi Arabia has chosen, and a direction that we acknowledge and accept as referenced in our Special Report.

The question really is, are speculative investors hearing Saudi Arabia?

share_linkedin