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Derivatives traders still bearish on oil market in July


Latest data from securitised derivatives platform Spectrum Markets has demonstrated that retail investors remained steadily bearish on oil in the month of July, despite some upward momentum in energy markets.

The broker said that what is striking about July is the contrary trend in retail investor sentiment compared to the positive development of the oil prices.

In July crude oil prices saw the sharpest rise in the last one and a half years, and reached their highest level in three months. Previously, crude oil prices fell by almost a fifth in the past twelve months due to the weak global economic situation amid rising interest rates.

Retail traders turning bearish on oil price

Meanwhile, retail investor sentiment data for oil investment has steadily deteriorated over the past three months. The value for WTI fell from 112 in May to 109 in June and a further 14 points in July to 95. The value for Brent was negative 95 in July, 98 in the previous month and positive 103 in May.

The Spectrum European Retail Investor Index (SERIX) uses pan-European data from the trading venue to shed light on investor sentiment towards current developments in the financial markets.

Trades executed by retail investors are analysed on a monthly basis and the share of trades with a bearish trend is subtracted from the share of trades with a bullish trend, to give a single figure (rebased at 100) that indicates the strength and direction of sentiment.

Trades with a bullish tendency are purchases of long instruments and sales of short instruments. Sales of long instruments and purchases of short instruments are attributed to the bearish trend. Trades that are matched by retail clients are disregarded.

Chinese economy vs OPEC+

The market is currently speculating on the impact of large-scale support measures for the Chinese economy, with Chinese authorities announcing a new package of measures at the end of July to boost sales of cars and electronics in particular. In addition to hopes of economic stimulus from China that could support rising demand for oil, the tightening of supply is also evident.

OPEC+ member countries, which currently control 40 per cent of the global oil market, have cut production to stabilise prices. One reason that the production cuts are not having their intended impact on the market is that, according to OPEC’s monthly report, oil production by non-member states representing the remaining 60% increased by around 1.4 million barrels per day in 2023, with the USA, Brazil, Norway, Canada, Kazakhstan and Guyana producing the lion’s share.

“Despite analysts expecting supply to tighten in the second half of the year, recession fears and the sluggish economic recovery in China are currently dominating the mood in the oil market,” explained Michael Hall, Head of Distribution at Spectrum Markets.

In addition, US oil companies, among others, are struggling with declining investor interest, which is partly due to a stronger focus on sustainability.

“Longer term, some of the key market factors affecting prices suggest a less rosy outlook for oil and retail investors seem to be responding with caution,” Hall added.

Spectrum Markets traders still bullish on DAX

In July 2023, 101 million securitised derivatives were traded on Spectrum, with 32.9% of trades taking place outside of traditional hours (i.e., between 17:30 and 9:00 CET).

83.7% of the traded derivatives were on indices, 10.7% on currency pairs, 3.4% on commodities, 2% on equities and 0.2% on cryptocurrencies, with the top three traded underlying markets being DAX 40 (32.8%), NASDAQ 100 (19.7%), and S&P 500 (13.2%).

Looking at the SERIX data for the top three underlying markets, the DAX 40 increased from 97 to 99, the NASDAQ 100 remained bearish at 98 from 97, and the S&P 500 increased marginally from its record low of 88 to 89.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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