NEW YORK (TheStreet) -- Summer is coming and investors are preparing, as usual, by betting that oil prices will rise. But this year, they might do better banking on less pain at the pump.
John Kosar, a StockTwits member and Director of Research at Asbury Research, sees concerning signs in the behavior of commercial hedgers in oil futures contracts.
Smart money commercial hedgers are holding a record net short (bearish) position of 445,492 crude oil futures contracts as of May 27th.? John Kosar, CMT (@AsburyResearch) Jun. 1 at 11:00 AM
Kosar, who hails from the trading pits of the Chicago Mercantile Exchange, maintains that commercial hedgers are the ones to watch when it comes to predicting oil prices. Unlike large speculators, which tend to be firms that often buy futures based on momentum, commercial hedgers are in the oil business and trying to protect their livelihood.
"These are the inside guys," explained Kosar in a phone interview. "These guys know the business."
Since March, commercial hedgers have hovered near record short levels. The way Kosar reads the data, hedgers believe the current oil price around $103 per barrel is frothy. And they're trying to protect themselves from when prices inevitably come down.
Large speculators, on the other hand, see little chance of that happening. This group is the most net long that they have been in the history of the data, said Kosar.
The general investment bullishness on oil is reflected in the sentiment of oil stocks. Investors are 61% bullish on United States Oil (USO) according to StockTwits analytics.
Data added to the bullish sentiment today. A U.S. government report showed a larger-than-anticipated decline in crude supplies. It also showed rising gasoline stockpiles.
Some investors believe oil could retest recent highs given the data and the recent performance of light, sweet crude futures.
But Kosar is taking his cue from the smart money in the oil business.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.