We’ve talked here at length about the extent to which “damn the fundamentals, I’m staying long” turned out to be a really, really bad idea with regard to crude.
Here’s how we illustrated the situation late last week in the immensely popular post “‘Wait For Iiiit….’ Crude’s Epic Collapse Is Warning Sign For Another Massively ‘Consensus’ Trade“:
Are all those Treasury shorts going to learn anything from everyone who was massively long crude?.. pic.twitter.com/4BNbFDzRKy
— Walter White (@heisenbergrpt) March 10, 2017
Well, as it turns out, that spec long position was cut in WTI (albeit slightly) heading into last week’s carnage, but needless to say, managed money net length was still massively long, which means some folks got massively f*cked. Hence the amusing visual representation shown above.
The question now, of course, is what the picture will look like come Friday when positioning data is released for the week ending yesterday. Or, put differently, how will the following charts look once we get a read on how much smart money ran screaming to the exit after finding out that it’s not a good idea to try and swing on a speculative limb when the weight of your collective position is likely to break said limb…
Managed money net length as of Tuesday 7 March (reported on Friday 10 March and Monday 13 March) was down moderately for WTI for the second week in a row. That said, net length for Brent ticked higher, after dropping moderately the previous week. Given the size and speed of the correction, we expect a more significant decline in net length to be reported for both WTI and Brent in the week ending Tuesday 14 March. As prices came under downward pressure last week, they broke through technical support levels and key moving averages, which also accelerated the declines.
Clearly, with net length in WTI and Brent still near record highs, there is much more room for profit-taking and liquidation, and we do expect some of this – perhaps a lot of this.