LONDON (Reuters) - Hedge funds were heavy buyers of petroleum last week, purchasing a record amount of WTI, as managers interpreted battered and even negative crude prices as an opportunity to position themselves for a future rally.
Hedge funds and other money managers purchased the equivalent of 122 million barrels in the six most important futures and options contracts in the week to April 21, the largest one-week increase since before Christmas.
Last week’s reporting period included the period of negative oil prices in U.S. light sweet crude futures (WTI) on April 20, which does not seem to have dissuaded funds from buying and may even have encouraged them.
Fund managers were heavy purchasers of crude, with a focus on NYMEX and ICE WTI (+108 million barrels) and smaller buying in Brent (+23 million).
But they continued to sell fuels, including U.S. gasoline (-2 million barrels), U.S. diesel (-2 million) and European gasoil (-5 million).
Last week’s purchases continued and accelerated the pattern of crude-focused and especially WTI-focused buying that has been evident for several weeks.
Portfolio managers have raised their combined position in petroleum futures and options in each of the last four weeks by a total of 205 million barrels.
Within that total, crude positions have risen for four weeks running by a total of 220 million barrels and WTI positions have risen for seven weeks now by a total of 190 million barrels.
By the close of business on April 21, the day after the flash crash, funds were running a net long position in WTI equivalent to more than 307 million barrels, one of the largest net long positions in the last three years.
WTI buying seems to reflect a calculation that with prices so low the balance of risks is tilted towards the upside – despite concerns about storage running out and the risk of another price plunge.
WTI purchases are not simply closing out previous short sales as prices have tumbled. Funds initiated 91 million barrels of new long positions in WTI last week while closing out 17 million barrels of previous shorts.
Over the last seven weeks, portfolio managers have added a total of 166 million barrels of new bullish long positions in WTI, while trimming bearish shorts by 23 million.
Fund long positions in WTI now outnumber short positions by a ratio of 4:1, up from less than 2:1 seven weeks ago in early March.
The combined one-week increase in NYMEX and ICE WTI positions last week was easily the largest since detailed records began in 2009.
But there has been a clear shift towards WTI contracts listed on ICE rather than NYMEX, which has been evident for several weeks but accelerated in the latest reporting period.
Funds hold a net long position of 98 million barrels in ICE WTI, up from 21 million barrels seven weeks ago, an increase of 365%.
By contrast, funds hold 210 million barrels in NYMEX WTI, up from 97 million seven weeks earlier, an increase of 117%.
Portfolio managers now hold almost a third of their net long position in ICE WTI up from just 18% seven weeks ago.
John Kemp is a Reuters market analyst. The views expressed are his own.
- Extreme volatility raises questions over WTI (Reuters, April 24)
- Price plunge casts doubt on future of U.S. crude futures (Reuters, April 21)
- Hedge funds sense crude at turning point but not fuels (Reuters, April 20)
- As oil output deal neared, funds scaled back short bets (Reuters, April 14)
Editing by Kirsten Donovan