As of a week ago yesterday, total net length held by all non-commercial interests trading Nymex WTI crude oil hit a record 275,582 contracts; a 92% (!) increase since the end of January. As discussed on Monday, that is enough oil to fill the Nymex storage hub 6× over.
Last year, a total of 115.3 MMbbls of Nymex spec
That is to say, they could offset imports if they were in the business of making deliveries, which of course, they are not.
As written in today’s issue of The Schork Report, speculators now have three options… they can hold their mud, they can roll their length or they can simply liquidate. Regardless of their decision, their future is now.
Yesterday the spot oil contract on the Nymex for April delivery traded down into the 50/62% retracement range, i.e. the area that our friend Dennis Gartman dubs “The Box.”
On March 07th the Nymex contract topped 106.95. To this effect, The Box is defined from 97.02 to 94.68. As goes the May contract, The Box is traced from 99.26 to 97.14. Last night the contract settled at 97.98 (!) i.e. closer to the 62% line than the 50%.
On a rolling contract basis the bulls have a little wiggle room. The Box here is defined from 95.45 to 92.74. Failure to hold this level would likely clear a path below $90. More to the point, on February 16th spot oil peaked at 85.95, but then gapped higher the following session as tensions in the Middle East flared. The low print on February 17th was 87.35…The Gap.
That’s important, just as nature may abhor a vacuum, markets certainly abhor gaps.
The Schork Report is thus advising clients that if bulls cannot defend The Box, then they face the prospect of further weakness towards The Gap.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.