Publications: Notes at the Margin

Swap Positions: Implications of Growing Short on US Crude Oil Production (December 11, 2017)


The "Commitments of Traders" published by the Commodity Futures Trading Commission for US exchanges and the InterContinental Exchange for the Brent market provide endless fascination for reporters, analysts, and traders. Every week one finds references to the CFTC data. Two reporters, John Kemp of Reuters and Gregory Meyer of Financial Times, write often on the subject. However, these authors and others have ignored a recent important development: the dramatic increase in the short position of swap dealers. Our research suggests this rise precedes a very large increase in US crude production in late 2018 or in 2019. The magnitude of the latter could be as much as thirty percent.


We pay attention to the increased short position because it seems a far better predictor of future US output than any other. The positions reported by the CFTC and ICE represent a significant allocation of cash by producers. Real money—lots of it—is being put on the table. Thus, unlike even the most diligent forecasting efforts of consultants such as Rystad Energy or agencies like the US Energy Information Administration, which rely on data on wells drilled and other statistics, here one has real commitments of funds from which to estimate. Presumably, these have been spent because the parties putting down the cash intend to produce specific volumes of oil. Furthermore, it seems likely that the firms are taking these positions to assure investors that their efforts to boost production will pay off.


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