Increased Short Selling of Oil by the Big Banks

It’s been ten months since we published our report big banks short selling of oil: Why are the Big Financial Institutions Selling Oil BIG on Oilprice.com. Since then the report has been downloaded more than 16,000 times. And since then the big bank has continued to sell oil in a very consistent fasion.

Having a look at the latest COT report we see that the current short position in oil by the “swap dealers” i.e. JP Morgan, Goldman Sachs, etc. is about 552,000 contracts (ICE and NYMEX, futures and options, combined). cftc.gov CoT data

Here is a chart showing how they consistently keep selling. The chart also shows that the oil companies themselves have a neutral strategy since the beginning of 2011.

Our analysis is clear. The Big Banks are positioning themselves massively short in oil. At the same time Big Oil is no longer hedging themselves for a price drop like they use to prior to 2011.

This can’t be without a reason. Too much money is involved. The Big Banks have sold 750,000 contracts (75 billion dollars) since end of 2010. They know that the oil price will eventually plunge and they are not taking that loss. The taxpayer will, by owning Big Oil stock and managed money funds that are net long oil.

2 thoughts on “Increased Short Selling of Oil by the Big Banks

  1. even if I support LENr revolution as self evident in the few next semesters, I suspect the short sales of oil is only linked to oild price getting down, or simply getting less bullish, because of global situation…

    If some bank was aware of LENr you will not see oild sales, but wind, solar, greenergies, greenresearches, nuke, panic sales.

    if bank were aware of that the VIX meter would explode

    if you want to enjoty benefits from LENr revolution, buy volatility for the next years, but out of market options on both sides, with no directions.
    what people think as losers from LENr may take the U-turn fast enough to be leaders, and predicted winners may miss the turn and crash…

    however what is sure is that when LENR revolution enter the global cognition, it will be a mess, and globally the economy will go forward.

    either buy all the market without distinction, or buy the volatility for next years.

  2. I agree that it might be a coincidence and that it might have nothing to do with LENR. And I agree with you investment philosophy, buying out-of-market options.

    However I also believe that there might be a connection. Mainly because there is such a huge discrepancy between how the Big Banks bet on the oil price compared to how the Big Funds bet. I’m yet to find another convincing explanation to this. And why are Big Oil abandoning their decade long hedging strategy (i.e. selling it directly instead of waiting to get the cash)?

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