LONDON (Reuters) - Hedge fund managers continued to liquidate their bullish positions in crude and fuels, amid negative sentiment towards petroleum, before prices rallied sharply in the second half of last week.
Hedge funds and other money managers cut their combined net long position in the six most important petroleum futures and options contracts by another 49 million barrels in the week to Aug. 20.
Fund managers have reduced their net long position in 13 of the last 18 weeks, by a total of 508 million barrels (36 percent), according to an analysis of records published by regulators and exchanges.
Total long positions have been slashed by 494 million barrels, while short positions have increased by 14 million barrels, since April 17.
As a result, portfolio managers’ combined net long position in petroleum has been cut to just 903 million barrels, the lowest for almost a year.
And the ratio of long to short positions has fallen from almost 14:1 to just over 8:1, leaving the market looking much less lopsided than before.
The most recent week saw continued liquidation of net length in Brent (-12 million barrels), NYMEX and ICE WTI (-16 million), U.S. gasoline (-10 million), U.S. heating oil (-6 million) and European gasoil (-5 million).
As in previous weeks, most of the changes came from the long side of the market, with fund managers trimming old bullish long positions rather than adding new bearish short ones.
But there was a notable increase of 15 million barrels in short WTI positions on NYMEX, the largest one-week rise for 10 months.
Negative sentiment among fund managers up to and including Tuesday last week, the cut-off date for the commitments’ of traders reports, likely created the conditions for a strong bounce later in the week.
But benchmark Brent prices have traded sideways in a range between $70 and $80 for the four months since April, after rallying strongly over the preceding nine months.
Prices are caught in the cross-current between fears about a supply-crunch as a result of the re-imposition of Iran sanctions and a potential hit to demand as a result of a slowdown in global growth.
Until one, or both, those sources of uncertainty are resolved, prices seem set to remain rangebound.
John Kemp is a Reuters market analyst. The views expressed are his own.
- Bullish oil bets fall to 11-month low (Reuters, Aug. 20)
- Frothy oil market turns increasingly flat (Reuters, Aug. 13)
- Oil market hits a cyclical pause (Reuters, July 24)
- Hedge funds slash bullish oil positions after prices peak (Reuters, July 23)