Two of the most powerful, yet most feared words in no-limit hold’em poker: “ALL IN”. When Texas Dolly (Doyle Brunson, Professional Poker Player), surveys the cards that have been gently placed on the traditional green felted poker table, he calculates his risk reward of pushing “All In” and risking all of his chips on the current hand or folding and seeing more hands to come. With this scenario happening during the World Series of Poker often, I can’t help but think of how many calculated risks are “All In” during this 37% rally in WTI crude and 40% rally in Brent crude from their mid-summer lows. Hedge funds and money managers have amassed a net bullish position in crude and refined products amounting to more than 1 billion barrels of oil as of October 31st. Since the end of June, the net long position in the five major contracts covering Brent, WTI, gasoline, and heating oil has surged by almost 720 million barrels and is currently just 3 million barrels shy of the record net longs set in February of this year. With prices as of 1pm EST, near 2 ½ year highs at $57.22 in WTI, $63.77 in Brent, $1.8138 in RBOB, and $1.9220 in HO, it’s no wonder why fund managers have continued adding to bullish positions in search of higher commodity returns. As we have discussed before, this concentration of long positions creates a significant risk of a sharp price reversal when everyone starts heading for the exits in an attempt to realize profits or when stop levels are triggered technically. With a clear breakout above this year’s highs of $55.24, to much of the Kingdom's liking, we are certainly in a “buy pullbacks” mode in WTI.
With an 18% rally in just five weeks, some technicians feel like this market is overcooked. But, with the continued geopolitical tensions and continued tightening of global crude supply, “the trend is your friend” is an “All In” situation in the near-term. For now, we await the APIs tonight and the DOEs tomorrow for a little bit more confidence in pushing “All in” or if it’s time to cash in some chips.