Band John Kemp

LONDON, July 11 (Reuters)Investors last week dumped oil-linked derivatives at one of the fastest rates in the pandemic era as fears of recession intensified.

Hedge funds and other money managers sold the equivalent of 110 million barrels in the six largest oil-related futures and options in the week to July 5 ( 3c9JYTa).

Fund managers have now sold a total of 201 million barrels in the past four weeks, according to position records released by ICE Futures Europe and the US Commodity Futures Trading Commission.

The combined position has fallen to just 445 million barrels (in just the 22nd percentile for all weeks since 2013) from a recent high of 761 million in early January (71st percentile).

Most of last week’s adjustment came from the liquidation of previous bullish long positions (-71 million barrels) rather than the creation of new bearish short positions (+39 million).

The bullish bias in the hedge fund industry has evaporated, with long positions outnumbering short positions by a ratio of 3.82:1 (44th percentile) from 6.68:1 just four weeks ago ( 83rd percentile).

Last week’s sales were led by Brent (-54m barrels) and NYMEX and ICE WTI (-41m), but there were also US gasoline sales (-8m) and European diesel (-7 million). Only the American diesel remained unchanged.

The combined position of middle distillates (gasoil and diesel) has fallen for three consecutive weeks by a total of 17 million barrels and is now at an 18-month low.

Distillates are the most sensitive to the economic cycle and the number of positions and the long-short ratio have fallen to levels consistent with an economy entering a period of slower growth.

Only the shortage of refining capacity and the low stocks probably prevent the position of the distillate from falling even further.

Such support, however, does not exist for crude oil. The combined position fell to just 339 million barrels (13th percentile) with a long-short ratio of 3.77:1 (37th percentile).

Portfolio investors are now positioned for a mid-cycle slowdown or late-cycle recession which should ease current oil shortages and replenish depleted inventories over the next 12 months.

Associated columns:

– Global diesel demand begins to slow as economy falters (Reuters, July 8)

– Oil bulls pull back as economic outlook darkens (Reuters, July 4)

– Funds sell oil at fastest pace in 15 weeks as economic outlook deteriorates (Reuters, June 27)

– Diesel demand set to fall as economies slide into recession (Reuters, June 23)

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

(Editing by David Goodman)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.