Data from the Commodity Futures Trading Commission (CFTC) shows that people who deal in physical oil have dwindled their short hedges down to virtually nothing and there is a lack of explanation as to why are they “abandoning” the futures.

The CFTC data as of last Thursday shows that the Producer/Merchant/Processor/User class of traders that participate in the futures (green line) have been cutting their short positions rapidly since March 2011 and if the trend continues may end up on the long side.

This class of a trader typically seeks to hedge downward price risk while transferring the risk of any future price appreciation to the speculator.

So why are physical users of oil not hedging the downward price risk? Does this mean that physical users of oil believe that oil has only one way to go – up?

Not clear but some CFTC changes in classification may have caused certain producers to be classified as speculators. If so, then the reclassification looks like an ongoing issue… or is it.