To what extent has oil trading developed from a microtransaction structure perspective?

1. Observations of the Microstructure of Oil Futures Trading: How Far Have Oil Trades Gone?

1. Domestic crude oil futures trading volume: Rises to the 70%+ percentile level since data availability

Judging from trading volume, trading volume of crude oil and fuel oil futures on domestic exchanges has surged to the 73.1% percentile level since data availability. INE crude oil, INE low-sulfur fuel oil, and fuel oil futures on the Shanghai Futures Exchange have risen to 71.2%, 95.3%, and 84.7% percentile levels, respectively, surpassing the period during the Russia-Ukraine conflict outbreak in 2022 (Figure 1).

2. Domestic crude oil futures trading value: The first 20 days before March account for about 10.9%, slightly lower than during the Russia-Ukraine conflict period

From the perspective of trading value (Figure 2), in the first 20 days before March, the average daily trading value for crude oil and fuel oil futures was CNY 375.8 billion, and together accounted for about 10.9% of the total trading value across 77 futures contracts. Among them, INE crude oil accounted for 7.6%, INE low-sulfur fuel oil accounted for 0.4%, and fuel oil on the Shanghai Futures Exchange accounted for 2.9%. This share is slightly lower than during the outbreak of the Russia-Ukraine conflict; from March to September 2022, the average monthly share of trading value for crude oil and fuel oil was about 12.5%.

3. Domestic crude oil futures open interest: Year-over-year growth exceeds 100%, and the share hits a new high since 2022

From the perspective of open interest growth, on March 20, the year-over-year growth rate of open interest in INE crude oil futures was as high as 122.5%, with an average year-over-year increase of 129% over the past week. The open interest in INE low-sulfur fuel oil increased 10.7% year over year, with an average year-over-year increase of 2.1% over the past week. Open interest in fuel oil on the Shanghai Futures Exchange increased 0.6% year over year, with an average year-over-year increase of 8.2% over the past week.

From the perspective of the open interest share, the open interest share of INE crude oil futures over the past week hit a new high since 2022.

4. International crude oil futures trading volume: Near the historical peak from March 2020

From the international market perspective, ICE Brent crude oil and WTI crude oil futures trading volume has already risen to nearly the historical peak level from March 2020.

5. International crude oil futures and options non-commercial net positions: At historical 70%+ percentile levels

Non-commercial net positions (long minus short) in WTI crude oil and London Brent crude oil futures and options are at 72.3% and 88.3% percentile levels, respectively, and the combined figure is at 72.9% percentile level since data availability.

At present, both crude oil net long positions are still below the peak level in 2018. The current net long position in Brent crude oil is already higher than that in the 2022 period, while the net long position in WTI crude oil is roughly 70% of the 2022 peak (around 450,000 contracts).

6. International crude oil positioning concentration: Low net long concentration for Brent, moderate net long concentration for WTI

For the positioning concentration of international crude oil futures and options, we observe the net position concentration of the top 4/8 holders on the long side:

Low Brent net long concentration means longs are highly dispersed—being bullish on Brent is a consistent market expectation among participants. As of the week of March 17, the long-side net positions for the top 4/8 holders in Brent were 5.7%/8.5%, at a 1.3% percentile level / the lowest in history, respectively.

WTI crude oil has moderate long concentration. As of the week of March 17, the net long positions for the top 4/8 holders were 7.9%/12.5%, at 37.2%/43.5% percentile levels since data availability.

7. Crude oil ETF fund flows: Brent ETF net inflows hit a 15-year high; WTI crude oil ETF has recently seen net outflows

Using the U.S. oil fund (tracking WTI crude oil prices) and the U.S. Brent crude oil fund (tracking Brent crude oil prices) as representatives:

WTI crude oil fund recently switched to net outflows (Figure 8****). Over the past 20 trading days (about one natural month), the U.S. oil fund recorded net inflows of $450 million, at a 92.6% high percentile level since May 2006, but in the most recent 5 trading days (one week), net inflows have turned negative to -$5****00 million, indicating that market sentiment has cooled at the margin.

Brent ETF fund flows have continued with high inflows (Figure 9). Over the past 20 trading days (about one natural month), the U.S. Brent crude oil fund recorded net inflows of $400 million, the highest since January 2011; **in the most recent **5 trading days (one week), net inflows were $215 million. Since March 6, the scale of net inflows has been setting new highs, indicating that market bullish sentiment toward Brent is strong.

2. Review of Key Overseas Data and Tracking High-Frequency Data

(I) News Observations of Demand Backlash from High Oil Prices

On the total amount side, the WTO said that if oil and gas prices stay high for the rest of this year, it could reduce the global GDP growth forecast for the full year by 0.3 percentage points, which would then lead to a 0.5 percentage point reduction in the global trade growth forecast. For regions that rely on energy imports, the drop could reach 1 percentage point. That is to say, under a scenario where energy prices remain high, the growth rate of global goods trade volume might be only 1.4% this year.

Second, from the perspective of industries, in agriculture, due to a surge in global natural gas prices and higher costs for nitrogen fertilizer, last Thursday a U.S. agricultural group coalition sent a letter to Trump, requesting government assistance.

In industry, we roughly observed three points:

First, high-energy-consuming industries are being hit. Uniden, an industrial enterprise association representing France’s high-energy-consuming industries, said some companies have already started cutting production capacity.

Second, aluminum production and supply are being significantly affected. The Gulf region accounts for 8% of global aluminum supply. Due to the disruption to shipping in the Strait of Hormuz, which has also affected the normal supply of special industrial inputs such as sulfur, multiple large aluminum producers have shut down or invoked force majeure clauses to suspend deliveries. For example, a Qatar smelter announced a shutdown two weeks ago; meanwhile, Bahrain Aluminum Company said that since it cannot transport aluminum through the Strait of Hormuz, it has paused shipments.

Third, chip production may also be affected. Korean officials warned that if the conflict continues for a long time, it could disrupt the supply of key semiconductor manufacturing materials imported from the Middle East, including helium—an essential material for chip production that currently has no feasible substitute.

In the transportation industry, a sharp rise in jet fuel prices has hit air transport. In response, airlines have begun partially cutting flights in addition to charging more surcharges—for example, Scandinavian Airlines and Air New Zealand.

Finally, at the level of household life, to control energy consumption, some Asian governments have introduced energy-saving administrative measures. For example, the Thai government ordered civil servants to use stairs on foot instead of elevators and to work from home; Vietnam urged companies to allow employees to work from home to “reduce travel and transportation demand”; the Philippines implemented a four-day workweek and required officials to keep travel limited to “necessary official business”; Bangladesh brought forward the Eid holiday and allowed universities to close early to save fuel; Pakistan implemented a four-day workweek for government agencies and closed schools.

(II) Important Economic Data and Events from the Past Week

(III) Important Economic Data and Events for the Coming Week

Key focus on the preliminary March manufacturing PMI readings for major economies to be released on Tuesday, March 24.

(IV) Weekly Economic Activity Index

The central trend of the U.S. economic activity index is moving downward. For the week of March 14, the U.S. WEI index was 2.6% (four-week moving average: 2.59%), and last week was 2.67% (four-week moving average: 2.67%).

Germany’s economic activity index central trend is flat. For the week of March 15, Germany’s WAI index was 0.04% (four-week moving average: -0.04%), and last week was -0.05% (four-week moving average: -0.04%).

(V) Demand

1. Consumption: U.S. Redbook commercial retail growth oscillates around and then declines

U.S. Redbook commercial retail growth oscillates around and declines. For the week of March 13, the U.S. Redbook commercial retail year over year was 6.4%, with a four-week moving average of 6.58%; the prior week was 6.2%, with a four-week moving average of 6.78%.

2. Real estate: U.S. mortgage rates rebound, and the number of mortgage applications oscillates and declines

U.S. mortgage rates** rebound.** On March 19, the 30-year mortgage rate in the U.S. was 6.22%, up from 6.11% the previous week and 6.0% two weeks earlier.

The number of mortgage applications oscillates and declines. For the week of March 13, the MBA market composite index in the U.S. (reflecting the number of mortgage applications) was 347.1, with a week-over-week change of -10.9%, versus 3.2% week-over-week the previous week.

(VI) Employment

1. Unemployment: Initial jobless claims fall, and the number is below expectations

Initial jobless claims fall, and the number is below expectations. For the week of March 14, initial jobless claims in the U.S. fell to 205,000, with expectations of 215,000, and the prior value was 213,000.

Continuing jobless claims rebound. For the week of March 7, continuing jobless claims rose from 1.847 million to 1.857 million, with expectations of 1.85 million.

2. Job openings: Job openings show a marginal cooling in high-frequency data

U.S. job openings: monthly central trend remains steady, while high-frequency readings edge lower. As of March 13, the INDEED job openings index was 103.04, down -1.14% week over week from the previous Friday, and -0.35% week over week. The average of the INDEED job openings index since March 1 through now has been 103.99, basically in line with February’s average of 103.98.

(VII) Prices: Commodity prices continue to fluctuate higher; U.S. gasoline retail price rises 6% month over month

Overseas commodity prices continue to fluctuate higher. On March 20, the RJ/CRB commodity price index was up 0.4% week over week, versus 0.9% the prior week.

U.S. retail gasoline price growth is slowing at the margin, but is still as high as 6%. For the week of March 16, U.S. retail gasoline prices were $3.57 per gallon, up about 6% month over month, versus a 16.6% month-over-month increase the previous week.

(VIII) Finance

1. Financial conditions: U.S. financial conditions drift slightly lower amid fluctuations; the euro area shows marginal improvement

U.S. financial conditions drift slightly lower amid fluctuations. On March 20, the Bloomberg Financial Conditions Index in the U.S. was 0.123, versus 0.242 the day before, 0.133 the previous week, and 0.097 the week before that.

Euro area financial conditions improve at the margin. On March 20, the Bloomberg Financial Conditions Index in the euro area was 0.975, versus 0.87 the prior week and 1.147 the week before that.

2. Offshore U.S. dollar liquidity: tighter amid fluctuations

Offshore U.S. dollar liquidity fluctuates toward tighter conditions. On March 20, the 3-month yen-to-dollar swap spread basis was -21.8 bps, versus -21.8 bps one week earlier and -20.1 bps the week before that; the 3-month euro-to-dollar swap spread basis was -4 bps, versus -3.75 bps one week earlier and -2.75 bps the week before that.

3. Credit spreads: the worst spreads for high-yield U.S. dollar bonds fluctuate higher

High-yield U.S. dollar bond spreads fluctuate higher. On March 20, JPMorgan’s worst spread (Spread-to-worst) for global BB-B rated U.S. dollar bonds was 290.66 bps, narrowing by 3.86 bps from 294.52 bps for the previous trading day, and roughly in line with 290.58 bps from last Friday.

4. Treasury spreads: U.S.-Japan spreads widen; U.S.-Europe spreads largely steady; Italy-Germany spreads widen significantly

U.S.-Japan spreads widen, while U.S.-Europe spreads are broadly steady. As of March 18, the 10-year U.S.-Japan Treasury spread was 202.9 bps, slightly wider by 0.4 bps from last Friday. On March 19, the 10-year U.S.-Europe Treasury spread was 123.8 bps, narrowing by 3 bps from last Friday.

The risk premium for peripheral European sovereigns widens sharply. As of March 20, the 10-year Italy-Germany bond spread was 97.5 bps, widening significantly by 12.3 bps from last Friday.

(IX) Fiscal: As of March 19, cumulative year-over-year federal funds expenditures were 5.9%

Using the day-by-day scale of federal funds expenditure from the U.S. Treasury’s 《Daily Treasury Statements》 to track changes in U.S. fiscal spending on a high-frequency basis.

As of March 19, total federal funds expenditures in the U.S. were approximately $1.87 trillion, with a year-over-year growth rate of 5.9%. For the same period last year, total funds expenditures were $1.77 trillion, with a year-over-year growth rate of 7.6%.

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