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Reasons to be bearish on oil


Despite the sharp falls in the oil price, the unwinding of speculative bullish positions that has reinforced downward pressure since the summer of 2014 is probably not yet over, says Viktor Nossek, Director of Research, WisdomTree Europe… 

On NYMEX, the commodity futures exchange, some 324,000 WTI crude oil contracts are currently held as net long speculative positions; 12% of the open interest and much higher than historical standards. If the net long positions fell by 200,000 contracts, i.e. back towards a more normal open interest level of 5%, there would be considerable further pressure on oil prices.
Geared short ETPs tracking energy commodities have performed well recently. As shown in the chart below, a triple (3x) short ETP tracking WTI crude oil, such as BOOST WTI Oil 3x Short Daily ETP (3OIS), returned 167% (from 1 Dec 2014 to 30 Jan 2015) to investors. With WTI crude oil having fallen 28% over the same period, it demonstrates that geared short ETPs are an efficient way for investors to express a bearish conviction, or to build hedges that require less capital.
Boost has seen significant activity in trading volume as a result of the spiking volatility in commodity markets. Monthly trading since the second half of 2014 has risen exponentially, from USD3 million in July to USD160 million in January 2015 helping Boost’s AUM of OIL ETPs to grow to USD42 million (as at 31 Jan 2015).”

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