David Hay — On Inventories and Derivatives
"Buy crude when the money management community is extremely bearish." A contrarian read on oil-futures positioning at a five-year net-short extreme.
One-line take: A short, single-chart macro note. Money managers (mostly hedge funds) are as net-short crude oil futures as they've been in five years — even more so than the Covid demand collapse. Hay's tried-and-true contrarian rule: buy crude when this cohort is extremely bearish (Buffett's "be greedy when others are fearful"). Past extremes paid 100%+ (2020), 26% (Sep 2024) and ~10% (comparable-to-now readings). Method: dollar-cost-average into oil for long-term investors; traders should wait for stabilization since the brutal downtrend (oil −30% since January) may not have turned yet. Inventories remain low both globally and in the U.S.
1. Stocks & names mentioned
None — a pure macro note on crude-oil futures positioning. No individual securities, tickers or funds are named (only "crude and oil-related shares" generically). Crude oil is a commodity, not a ticker — it lives in the talking points below and the master macro table. (Warren Buffett is cited for his contrarian dictum; "Kemp" is the chart source — John Kemp's money-manager positioning data; Evergreen Gavekal appears only in the boilerplate disclosure. People/sources are excluded.)
2. Talking points
The setup — trade oil against the money managers
- A "tried and true way to make money on the oil market's volatility is to buy crude when the money management community is extremely bearish."
- That sentiment is tracked through positioning in the futures (derivative) market — the net position of money managers in oil futures contracts.
The red line is really hedge funds
- The money-manager net position "mostly reflects the status of hedge funds," which are far more active in futures than traditional advisors or portfolio managers.
- It has been "consistently rewarding to move in an opposite direction to what this cohort has been doing" — a classic Buffett "be greedy when others are fearful, and fearful when others are greedy."
A five-year net-short extreme — worse than Covid
- Other than late summer 2024, this is as net-short as money managers have been over the last five years — and that includes the Covid demand collapse when futures went deeply negative on a storage shortage and inventory overhang.
- Buying oil at the Covid extreme would have produced a gain in excess of 100% over the next year, even using the physical price (which never went negative; it bottomed just under $20 in April 2020).
Recent contrarian entries paid 10–26%
- Going long at the September 2024 low generated a 26% return in under six months.
- Even buying when positioning was roughly comparable to the current reading (before price/positioning hit bottom) produced ~10% in about half a year. The strong rally into the start of 2025 is what prompted Team Haymaker to suggest some profit-taking on crude and oil-related shares.
How to play it — DCA for investors, patience for traders
- As usual, dollar-cost-averaging into oil when bearishness has been intense was the best approach — likely the same today, at least for long-term-focused investors.
- Traders may want to wait for stabilization: the jury is out on whether today's powerful rally marks a turn in the brutal downtrend that began in January (oil −~30%). What is clear is that oil inventories remain low globally and in the U.S.
Key points extracted from the Haymaker Substack post (in transcript.txt) for personal study. Not investment advice; this is a paid post and only the text captured for personal study is summarized here. © Haymaker / David Hay for source material.