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The WTI Crude Oil Jan'16 futures contract closed at $35.43 per barrel on Friday. The volatility associated with the oil futures contract rollover, from the January’16 to the February’16 contracts, could pick up soon, as the contract for January’16 will expire on December 21. The next technical supports are at $34.50, or the May’10 trendline support, and at $33.55 per barrel, or the February’09 low, if the crude oil sell off continues.
As of December 8, there are 253,141 long positions of light sweet crude oil futures, traded on the New York Mercantile Exchange (NYSE) by managed money or hedge funds, an increase of 2,084 long positions from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. This is compared to about 178,888 short positions, an increase of 7,083 short positions from the previous week where light sweet crude oil contracts are traded in units of 1,000 barrels. Hedge funds continued to increase their net short positions by about 4,999 contracts, as they are betting that the crude oil price could go lower.
The SET closed at 1,280.92 on Friday, down another 3.95% for the short trading week, a 21-month low. The index closed below 1,295.82, meaning the SET is now entering into bear market territory, defined as a downturn of 20% or more from the recent cycle high at 1,619.77 set in early February. The avalanche sell-off was triggered by the accelerated falling crude oil prices and Thai baht depreciation, which began in late November.
Besides investors losing money on their investments, a bear market will put a lid on IPOs and secondary offerings, meaning Thai companies will have difficulty to raise capital from the equity markets for refinancing or growth.
There is no quick fix for the falling crude oil prices, as the crude oil market is in contango and it isn’t going away anytime soon. Contango refers to a situation where traders are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity due to oversupply.
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