September 9, 2019 / 1:01 PM / 13 days ago

Column: Hedge funds sell oil as global economy deteriorates

LONDON (Reuters) - Hedge funds are becoming more pessimistic about the outlook for oil prices as trade tensions between the United States and China remain unresolved and global economic growth grinds to a halt.

Western Canadian canola fields surrounding an oil pump jack are seen in full bloom in rural Alberta, Canada July 23, 2019. REUTERS/Todd Korol/File Photo

Hedge funds and other money managers were net sellers of petroleum futures and options last week for the fifth time in seven weeks, according to an analysis of data published by regulators and exchanges.

Fund managers sold a total of 26 million barrels in the six most important futures and options contracts in the week to Sept. 3, bringing total sales to 148 million barrels since mid-July.

(Chartbook: tmsnrt.rs/2N68yqi)

Portfolio managers held a net long position of just 499 million barrels last week, only fractionally above the long-term “structural” long position of 491 million barrels.

As a result, funds have cut their dynamic net long position to just 8 million barrels, down from a recent peak of 420 million in April, and the lowest since February.

In the most recent week, funds were net sellers of U.S. gasoline (-19 million barrels), U.S. heating oil (-4 million) and European gasoil (-3 million), reflecting the deteriorating outlook for fuel consumption.

Position changes in crude were a wash, with net purchases of Brent (+18 million barrels) offset by net sales of NYMEX and ICE WTI (-18 million).

Overall, the hedge fund community’s positioning across the petroleum complex is now neutral to bearish, with concerns about the deteriorating economy more than offsetting production cuts by Saudi Arabia and its allies.

Until the threat of recession is realised, or lifted, portfolio managers are likely to remain cautious and avoid running a significant net long or short position across the complex.

John Kemp is a Reuters market analyst. The views expressed are his own.

Related columns:

- Sluggish oil consumption to keep pressure on prices (Reuters, Sept. 5)

- Hedge funds cautious on oil, wait for economy (Reuters, Sept. 3)

- Oil funds sidelined by economic uncertainty (Reuters, Aug. 27)

- Hedge funds sell oil as global economy slows (Reuters, Aug. 19)

Editing by David Evans

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