•  
Mon, 26th June 2017

Anirudh Sethi Report

  •  

Archives of “May 15, 2017” Day

How Hedge Funds Play The OPEC Deal Extension

We’ve had a good two-way crude oil market since the first of the year which has helped hold crude oil in a relatively narrow range as aggressive traders continue to play the long side, in anticipation of a balance between supply and demand.

This year began with an oversupplied crude oil market, but with a bullish tone set by OPEC when they decided to start reducing output in an effort to trim supply and stabilize prices. On paper, the idea seemed bullish. What they didn’t expect, however, was the surge in U.S. production that skewed their forecasts and timetables for global supply and demand to reach a balance.

For nearly six months, traders have been pelted with stories nearly every day telling them about OPEC supply cuts and increased U.S. production. The stories seem to have neutralized the markets to a point where crude oil prices have become range bound.

In order for a market to become range bound, some major market player has to be selling enough crude oil to stop a rally and some major market player has to be buying enough crude oil to stop the decline.

However, inside the trading range we’ve seen several pockets of volatility and these moves can only be blamed on the speculators and namely, the hedge funds.

If you’ve traded speculative markets, I’m sure you’ve noticed that markets come down faster than they go up. Essentially, this is because speculative buyers tend to be very careful about where they buy or enter the market, but when it’s time to sell, they don’t care what they pay to get out.

Trump’s bluff on North Korea will not work

To the extent that Donald Trump had a case for becoming America’s president and commander-in-chief, it was that his business success would position him to make better international deals for his country. The argument was that Trump as a master negotiator would drive a harder bargain with adversaries than his conflict-averse predecessor, Barack Obama, by bringing more credibility and unpredictability to the table, while using his leverage and deal-making skills to gain concessions.

Where North Korea was concerned, this meant putting down a marker that Obama’s failed policy of “strategic patience” had ended, that the U.S. would not tolerate the further development of Pyongyang’s missile and nuclear capability, and that if China did not join the U.S. in pressuring North Korea, it would also pay a major price.

 The approach sounds good in theory, but it is highly unlikely to work in reality. By proclaiming ambitious goals he is almost certainly unable to reach, making threats he is almost certainly unwilling to carry out, and signaling to China and others how badly he wants their help, Trump is setting himself up for an embarrassing climb down — one that will undermine his credibility not only with North Korea but with other global powers. Pyongyang further upped the ante with its latest missile test, on May 14, by launching what it claims is a new type of rocket capable of carrying a large nuclear warhead.