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

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  • Sunghee Choi
  • Seok-Joon Hwang

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.

Suggested Citation

  • Sunghee Choi & Seok-Joon Hwang, 2012. "Do traders' positions predict oil futures prices? A case study of the 2008 oil market turbulence," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(6), pages 456-464.
    • Handle: RePEc:ids:ijgeni:v:35:y:2012:i:6:p:456-464
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