Oil had a drop of Humpty Dumpty proportions yet somehow the oil bulls still believe.  It seems the bulls did not need the entire king horses and all the kings men, they just need the Fed , hopes of China stimulus and fear to stay long.  While oil fell a dramatic 6 percent plus last week commodity funds bought the break increasing their long positions by 5.6 percent which is the fifth straight week that they have increased their long positions. While oil continues to fall as the German IFO business Confidence weakens and German Chancellor German Chancellor Angela Merkel and French President Francois Hollande failed to agree to the timing of banking reforms the oil bull are just going to die hard.

According to the CFTC Crude Oil futures open interest increased an impressive 8.3 percent in the month of August. Commercial traders accounted 51.2 percent of open interest, held net short positions as  they increased their long positions by 5.2 percent and increased their short positions by 13.4 percent.

Non-commercial participants or speculators accounted for 44.4 percent of open interest, held net long positions. They increased their long positions by 11.3 percent and increased their short positions by 1.0 percent. Non-reportable participants, who accounted for 4.5 percent of total open interest, held net long positions; they increased their long positions by 4.8 percent and increased their short positions by 5.2 percent.

So it seems that despite the big drop the speculators are bullish regardless of the drop. The commercials of course crushed the specs last week but the big specs are staying long in a classic game of chicken. How long can the specs hang in with the commercials breathing down their throat?

We also saw staying power in the product side of the market. We saw RBOB gasoline futures open interest surge 12.0 percent in August. Commercial participants accounted for 56.6 percent of open interest, held net short positions; they increased their long positions by 4.8 percent and increased their short positions by 7.6 percent. Non-commercial participants, who accounted for 36.3 percent of open interest, held net long positions. They increased their long positions by 17.0 percent and increased their short positions by 27.4 percent. Non-reportable participants, who accounted for 7.1 percent of total open interest, held net long positions; they increased their long positions by 21.2 percent and increased their short positions by 11.6 percent.

In heating oil futures open interest increased 4.6 percent in August with commercial participants accounting  for 61.5 percent of open interest, held net short positions; they decreased their long positions by 1.1 percent and increased their short positions by 11.8 percent. Non-commercial participants, who accounted for 27.5 percent of open interest, held net long positions. They increased their long positions by 8.1 percent and decreased their short positions by 6.1 percent. Non-reportable participants, who accounted for 11.0 percent of total open interest, held net long positions; they increased their long positions by 25.7 percent and decreased their short positions by 10.2 percent.

Perhaps the rising open interest in oil came as trading funds looked to park money into oil as opposed to the sinking grain complex. Over all hedge fund managers reduced their exposure to commodities to the lowest levels since June.

Oil today has to overcome European worries. The conflict over the speed at which a banking union can be created could slow the time frame for a Spanish bailout and cause turmoil in their bond market as well as others like Italy and Greece. It seems that Greece can’t live up to the time table of reforms agreed to on the last bailout. Another reason the market wants a swift response to a banking union.

This will give the dollar a boost and oil some pressure and perhaps the main reason we are not down more is that there is a growing anticipation that we will see China move to stimulate its softening economy.

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Phil Flynn