Oil >> Relationship btw Net Long (oil) ETF positions Breaks Down (Reverses) in Dec, Net Short +300% in Dec Alone

Thought the above chart was interesting when evaluating what might happen with oil/crude prices, given the relationship between changes in oil ETF investment levels relative to changes in the price of crude has completely broken down. This occured, as depicted above, in December, simultaneously with the net short position in crude ETFs soaring +300%.

In the bottom part of the chart, where you see the white line and dark blue underneath, this represents the net short Oil ETF position in the aggregate (and, because different oil ETFs hold different #s of barrels of oil, the chart #s have been adjusted on a per-barrel basis such that the aggregate net long oil ETF position is comparable with figures presented for the (aggregate) net short position in oil ETFs as these flow through to the driver underlying these ETFs' behavior (i.e. the price of crude, or in this case the price of crude based on generic 1 month futures on WTI).

The bright green line represents the inverted price of oil, as represented by generic 1st month futures on WTI ( = 1 / Generic 1 mo. WTI FUT price). So, when this line is rising, WTI crude prices are actually falling, and vice versa.

The Yellow line depicts the aggregate net long position in oil ETFs over time.

As you can see, in the period covered by the chart and for about the last four years, the change in net long positions in oil ETFs closely tracked the inverse of crude prices (i.e. when WTI futures prices were on the downtick, investors would begin to jump into oil ETFs, likely attempting to capitalize on an anticipated (or speculated) bounce back). 

After so much consistent negative commentary from nearly all media sources (which is a very common topic of discussion), including analysts, reporters, "experts" on Bloomberg and/or CNBC, the continued consensus is "oil is getting hammered, and there's no end in sight for a potential rise in prices." While this is only my interpretation, I would attribute this massive jump in the net short postition (which occurred throughout the month versus on one single day or two) perhaps to the less-sophisticated investors (individuals and perhaps some wealth managers)who've had negative commentary around the oil outlook engrained into their brains so consistently they eventually abandoned the rational thought process that should be made before jumping into a short. 

Historically, as you can see from the chart investors got into oil when prices went down (you know that whole, "buy low, sell high" idea). This is the logical way to think about investing in any asset, while of course also considering the geopolitical backdrop and supply/demand dynamics for a commodity asset such as oil.

New E&P (exploration & production) to increase the global supply of oil from where it stands today is virtually non-existent (as it makes no sense at current prices, unless you're 75% of the way through a build-out). Offshore E&P is entirely non-economical at today's prices, so that shouldn't be adding any new capacity. 

While many worry about the impact of Iran's production coming online after being closed to the market for so many years, the incremental production out of Iran will be limited for the first few years. Because Iran had long anticipated it would not be granted the right to export its oil production, it allowed its infrastructure to become significantly outdated (don't think they've upgraded any of their drilling or other equipment since 19351-1940). For the first few years, this would naturally result in periodic maintenance/upgrades requiring shut-downs at Iranian oil-production facilities; this could reduce Iranian output by somewhere around 150k-200k barrels (a total estimate of mine, would vary significantly depending on how aggressive Iran is in getting its equipment upgraded so it can actually earn some decent money on its production activities).

Low quality, high viscosity oil in the U.S. (around the Bakken / North Dakota) was listed for as low as $1.50/barrel about a week ago. No producer in their right mind would continue to operate without some major cuts with pricing at these levels. Two of the oil majors in the region, namely Continental Resources and Hess, both announced massive cuts to planned spending in 2016: Continental will slash capex by 66%, while Hess will reduce capex 40% YoY against 2015.

I point these out just as examples to remind people >> while oil likely does have another leg down before it bottoms-out, oil is still a commodity and its market will continue to behave accordingly. Not to mention,  those short oil expose themselves to major geopolitical risk ... in the event that some geopolitical agreement among the major oil producing nations were to come through, leading to cooperation between the Saudi's, Iran and/or Russia, oil prices could go soaring and we could see a major short squeeze here (additionally, if some form of cooperation were to be agreed upon that led to any meaningful reduction in output from the Middle East / Russia, crude prices could soar from today's levels ... an expensive short to cover). While I am not suggesting this will happen, I caution those who're taking mid-to-large sized short positions in oil at today's levels. And by the way, this is unbiased as I have no position in oil, long or short. But at $20-$23/barrel, I'm piling in.