The scale of futures trading on the oil market--and commodity markets more generally--is a novel feature of the current financial scene. According to the Financial Times, "Daily average turnover has increased from 350,000 futures contracts in 2005, when electronic trading started to dominate, to 1.5m--or 16 times the world's global daily oil demand." Currently, funds control around 510 million barrels of oil in the New York and London futures markets--"equal to more than five days of global demand, or the combined monthly output of Saudi Arabia, Iraq and Iran, the biggest producers in OPEC." The impact of the shale revolution and fracking on the oil market is well known; less well appreciated, according to David Hufton, an oil broker, is the impact of "financialization." According to Hufton, "Futurisation of oil has been as dramatic in its impact as the arrival of horizontal drilling and fracking . . . Fracking transformed oil supply dynamics; futurisation has transformed the factors driving oil prices."
David Sheppard and Neil Hume, "Hedge funds loom large in oil price moves," Financial Times, May 15, 2015
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The FT piece contrasts the big movement of macro funds into oil futures with the abundance of oil in the physical market. The supply overhang is also emphasized in the following chart from Britain's Telegraph newspaper. It cites a recent oil market report from the International Energy Agency warning that over supply has reached 2.1 million barrels a day. "Iraq, Libya and Russia are all cranking up output, and Iran is waiting in the wings with an extra 400,000 b/d of quick supply if there is a nuclear deal."
Ambrose Evans-Pritchard, "Epic global bond rout is a QE success story - but it won't last," The Telegraph, May 13, 2015