WTI crude oil futures stood at the integer mark of 70 US dollars, completely igniting the enthusiasm of Wall Street hedge funds to buy higher oil prices.
Adam Webb, chief investment officer of Blue Creek Capital Management LLC, said that almost all Wall Street financial institutions are focusing on WTI crude oil for delivery in December 2022 with an execution price of $100/barrel. Call options.
He bluntly stated that his investment institution sold WTI crude oil futures put options to collect premiums, which were used to purchase the above-mentioned WTI crude oil futures call options.
Reporters have learned from many sources that the number of hedge funds currently betting wildly on WTI crude oil futures rising to exceed US$100 per barrel through options strategies is rapidly increasing.
“More and more hedge funds believe that the Fed’s indifference to inflationary pressures is a huge mistake and want to punish the Fed by betting on a sharp rise in oil prices.” A Wall Street commodities investment manager The hedge fund manager told reporters.
In his view, hedge funds’ buying behavior has also been “supported” by OPEC.
However, not all institutions agree with hedge funds’ crazy buying of crude oil futures.
A U.S. crude oil futures broker revealed to reporters that when WTI oil prices exceed $70 per barrel, U.S. shale oil production will increase, enough to balance the supply and demand relationship in the crude oil market. Slowing down the rise in oil prices. Recently, they found through research that as the U.S. economy rebounds and oil prices rise, many shale oil extraction bases in Texas are expanding production capacity.
Many hedge funds that support oil prices reaching US$100 per barrel pointed out that based on the increasing emphasis on the risks of climate change, the U.S. government will continue to tighten the extraction and use of petrochemical energy. The influence of U.S. shale oil on global oil prices has declined.
“In fact, the reason why many hedge funds have been buying up WTI crude oil futures is mainly because the Federal Reserve has repeatedly continued its loose monetary policy.” The above-mentioned Wall Street commodity investment model Hedge fund managers pointed out that as long as the Fed tightens its QE policy later, these hedge funds believe that their crazy buying of oil prices will have a higher chance of winning.
Hedge funds “don’t care about drinking”?
The latest data from the U.S. Commodity Futures Trading Commission (CFTC) shows that as of the week of June 1, the net number of WTI crude oil futures options held by asset management institutions, mainly hedge funds, was Long positions surged by 16,384,000 barrels compared with the previous week.
Behind this, a large number of hedge funds have bought call options on WTI crude oil futures that expire at the end of next year and have a strike price of $100, suddenly pushing up their net long positions. .
The aforementioned Wall Street commodity investment hedge fund managers said that the reason why these hedge funds believe that oil prices will reach $100 per barrel is due to the current market’s enthusiasm for the continued rise in oil prices. Extremely optimistic mood. First, on June 8, the volume of the Federal Reserve’s overnight reverse repurchase operations reached a record high of US$497.428 billion, indicating that the current liquidity of the US dollar is extremely abundant, triggering stronger expectations of a decline in the US dollar, which will help to increase the price of crude oil priced in US dollars; secondly, It is the recent lifting of social restrictions in European and American countries that has increased people’s enthusiasm for travel, which is driving crude oil demand further upwards.
Faced with the frenzied buying of hedge funds and the surge in oil prices, many investment banks issued risk warnings.
JPMorgan Chase analyst Natasha Kaneva said that for oil prices to reach $100 this year, three conditions need to be met. First, A large number of investors poured into the commodity market. Secondly, the dollar plummeted. Thirdly, oil demand was much higher than the pre-epidemic level in the fourth quarter; but it is obvious that this is almost impossible to achieve. What’s more, high oil prices will prompt some countries to increase crude oil exports, restricting the increase in oil prices.
In the opinion of a Wall Street multi-strategy hedge fund manager, the reason why many hedge funds are betting on oil prices rising to $100 per barrel is probably because they are not interested in drinking. ——Their real purpose is to use the above-mentioned options strategy to drive a significant increase in oil price volatility, and to make profits by betting on increased oil price volatility. After all, there is a close correlation between the increase in call option positions and the expansion of oil price volatility. As long as the former pushes up oil prices, it will naturally trigger an increase in oil price volatility.
He revealed that the current WTI crude oil futures market does not support hedge funds to directly “profit” by buying call options – that is, the trading price of WTI crude oil futures expiring at the end of 2022 is hovering at It is around US$61/barrel, which is far from US$100/barrel.
Reporters have learned from many sources that many Brent crude oil call options that had previously expired with a strike price of US$100/barrel failed to be delivered, but some hedge funds passed The above-mentioned options strategy amplifies the volatility of Brent crude oil futures prices, and buys derivatives that bet on increased volatility to obtain considerable profits.
Many countries’ monetary policies are forced to continue to tighten
As “inflation “The mother of all crude oil prices”, crude oil, which tends to rise sharply, is influencing the monetary policy direction of many countries.
On June 8, Brazilian Central Bank Governor Neto made it clear that the Brazilian Central Bank will study the issue of inflation at its next monetary policy meeting.
Previously, in response to the current situation of accelerating inflation in Russia and price increases of more than 10% for commodities such as building materials, the Central Bank of Russia stated that it would tighten monetary policy and start an interest rate hike cycle.
A major Wall Street investment banker bluntly told reporters:�Faced with the continued rise in crude oil and other bulk commodity prices, more and more central banks have prioritized responding to inflationary pressures in their monetary policies, and “supporting economic growth” has been relegated to the back burner.
He said that whether crude oil and other commodity prices can be curbed from continuing to rise depends largely on the actions of the Federal Reserve – although the latest Beige Book released by the Federal Reserve shows that price pressures in the United States are increasing. Rising, but the Federal Reserve has not relaxed its tone on “tightening QE monetary policy in advance”. In particular, the Federal Reserve has repeatedly emphasized that inflationary pressure may be a short-term phenomenon, which has led to market expectations that the Federal Reserve will continue its extremely loose monetary policy for a long time, and hedge funds have dared to continue speculating on crude oil and other commodities.
“Behind this is the large difference in economic structure between developed and developing countries.” Analyst Sam Laughlin, analyst at hedge fund MKS PAMP, said. In developed countries such as the United States, the economic structure is relatively complete and the operating efficiency of enterprises is high. Therefore, the proportion of commodity prices in corporate production costs is increasingly decreasing. As a result, enterprises can effectively resolve the pressure of rising commodity prices in the production process, making the rise in raw material costs have a negative impact. The ability to pass on rising price pressures is weak.
The economic situation of emerging market countries is exactly the opposite. Due to the incomplete economic structure and low corporate operating efficiency, many commodities in emerging market countries need to be imported, so they have high expectations for the prices of bulk commodities and other raw materials. The sensitivity to rising prices is higher. As a result, once oil prices rise rapidly, they will encounter extremely high inflation pressure. For example, the rapid recovery in oil prices in April caused Russia’s inflation rate to reach 5.5%, which is higher than the 4.7%-5.2% expected by the Russian Central Bank. Average inflation rate for the year.
In Sam Laughlin’s view, in order to solve the new round of inflationary pressure caused by the sharp increase in oil prices, it is not enough to rely solely on emerging market countries to increase monetary tightening. . To untie the bell, one must tie the bell. First, OPEC+ countries need to expand crude oil supply to reverse the market’s expectations of tightening crude oil supply and demand, causing oil prices to fall; second, the Federal Reserve needs to tighten monetary policy in advance to completely defeat the hedge funds borrowing from the Federal Reserve. Continue the speculative behavior of easing QE and aggressively buying up oil prices.
“However, it is still unknown whether the Fed’s monetary policy shift will take into account the inflationary pressures in other countries. In addition, some OPEC countries prefer to see oil prices rise to improve their fiscal balances. Rather than increasing crude oil export supply.” The aforementioned U.S. crude oil futures broker pointed out to reporters. The demands of various countries around their own economic interests are precisely what gives hedge funds the courage to bet on oil prices reaching US$100 per barrel. </p
