Title: Do traders' positions predict oil futures prices? A case study of the 2008 oil market turbulence

Authors: Sunghee Choi; Seok-Joon Hwang

Addresses: Department of International Commerce, Keimyung University, Dalgubeoldaero 2800, Dalseo-gu, Daegu, Korea ' Department of Economics and Finance, Keimyung University, Dalgubeoldaero 2800, Dalseo-gu, Daegu, Korea

Abstract: This paper empirically tests whether traders' positions predict crude oil futures prices through a case study of the 2008 oil market turbulence. It is found that the three-week-long trend of traders' net long position significantly forecasts prices when the prices excessively rise from April to July 2008. In specific, speculator's trend forecasts price continuation, whereas the hedger's trend predicts price reversals. However, during the price-collapsing period, no significant predictability is found. These findings provide two implications. First, the hedging-pressure theory can be supported in oil futures market when the market prices excessively rise and traders' position data are used as trend concept. Second, the recent argument on 'the 2008 oil bubble' asserting that excessive rise in oil prices during the second quarter of 2008 is associated with speculator's positions can be supported.

Keywords: hedging pressure theory; 2008 oil bubble; trader positions; net long position; crude oil returns; oil return predictability; oil futures; oil prices; oil market turbulence.

DOI: 10.1504/IJGEI.2012.051709

International Journal of Global Energy Issues, 2012 Vol.35 No.6, pp.456 - 464

Received: 04 May 2012
Accepted: 12 Sep 2012
Published online: 30 Aug 2014 *

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