A record volume of swaps that traders use to hedge benchmark physical oil prices changed hands on Friday as prices jumped, prompting market participants to suggest that one or more traders had been forced to close out big loss-making positions.
More than 108,000 so-called Dated to Frontline swaps traded on the ICE Futures Europe exchange on Friday, data from the bourse show. That’s the highest since at least 2015, far exceeding 68,000 contracts that were transacted in June last year.
Six people directly involved in physical North Sea oil and derivatives trading said that the heightened volumes bore the hallmarks of a trader having their positions stopped out. The term means that either the trades were closed involuntarily, or that they triggered a preset threshold requiring them to be closed.
The contracts, DFLs for short, represent the difference between ICE Brent futures and the Dated Brent market that underpins physical oil prices globally. Those instruments, as well as others tied to Dated Brent, rallied strongly last week, potentially stressing any traders who’d bet on declines.
On Thursday’s close, open interest in DFLs was the highest since early 2022, another sign of elevated positions before the heavy activity on Friday, ICE’s data show.
Investment funds held the biggest net-short positions since Jan. 2023 in such contracts last week, according to MifiD II data published by ICE.
April DFLs rose by 45 cents a barrel over the course of last week to trade at $1.05 on Friday, according to data from PVM Oil Associates Ltd. May contracts also jumped, while weekly swaps known as contracts for difference soared.
Source: By Alex Longley, Sherry Su from rigzone.com