In Oil, It’s “Smart” Versus “Dumb” Ahead Of OPEC Meeting

So overnight we got some headlines from Khalid Al-Falih and Alexander Novak and crude jumped.

In case you missed it, here’s are the bullets:

  • SAUDI, RUSSIA ENERGY MINISTERS MAKE JOINT STATEMENT IN BEIJING
  • AL-FALIH: OIL INVENTORIES DECREASING W/O SHOCKS TO MARKET
  • RUSSIA, SAUDI SEE OIL-CUT DEAL WORKING, INVENTORIES DECREASING
  • AL-FALIH: OIL CUT DEAL NEEDS TO BE EXTENDED
  • AL-FALIH: END OF DEAL SHOULD BE 1Q 2018
  • AL-FALIH: THERE’S ‘GENERAL CONSENSUS THIS IS THE RIGHT APPROACH
  • AL-FALIH: DECISION TO BE MADE AT MAY 25 MEETING
  • RUSSIA, SAUDI ARABIA FAVOR EXTENDING OPEC DEAL FOR 9 MONTHS
  • RUSSIA, SAUDI ARABIA FAVOR EXTENDING OPEC DEAL TO END-1Q 2018

To be sure, there’s nothing in there we didn’t already know. An extension to the cuts has been telegraphed for months as OPEC tries to figure out just the right mix of production cuts and jawboning to get prices to a kind of Goldilocks level that’s good enough to support GCC economies but not good enough to catalyze a long-term shale bonanza.

One interesting thing to note about the setup here is the divergence between the “smart” money and the “dumb” money.

You’re reminded that according to the latest CFTC data, hedge funds trimmed their net long in crude for the third consecutive week through last Tuesday.

CFTCNon

(BBG)

That comes on the heels of a rather unfortunate scenario in early March where specs were aggressively positioned long ahead of a horrific plunge during CERAweek and indeed the paring of longs we’ve seen in the last three weeks suggests folks were liquidating in the face of China-driven commodities carnage and an apparent flash crash in oil that unfolded two Fridays ago.

So that’s what the “smart” money has been up to.

Meanwhile, the “dumb” money is buying hand over fist ahead of the OPEC meeting. Indeed, the the U.S. Oil Fund took in $215 million last week, the second largest inflow this year:

USOFlows

So let’s give it two weeks and revisit this to see who was “smart” and who was “dumb.”

 

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