January 14, 2019 / 12:16 PM / 5 months ago

Commentary: Fund managers neutral on crude and fuel outlook

LONDON (Reuters) - Hedge fund managers show signs of having completed their recent sale of crude and refined fuels, with positions edging up slightly in the first week of the new year, amid hopes a recession can be averted.

A general view shows part of the state oil firm Petroleos Mexicanos (Pemex) refinery in Salamanca, in Guanajuato state, Mexico January 8, 2019. REUTERS/Daniel Becerril

Oil prices have bounced off their recent lows, the U.S. dollar has weakened against most other major currencies and expectations of a trade deal between the United States and China are rising.

Portfolio managers raised their net long position in ICE Brent crude futures and options by 6 million barrels to 158 million barrels in the week to Jan. 8.

Funds also boosted their net long position in European gasoil by 3 million barrels to a total of 5 million barrels, according to exchange data.

Net long positions in Brent and gasoil remain close to multi-year lows and increases since the start of the year have been very small.

But the heavy fund selling in crude and refined fuels reported during the fourth quarter appears to have ended, at least for now.

(Chartbook: tmsnrt.rs/2HcppoW)

The completion of fund sales has been enough to help oil prices bounce off their recent lows as at least a few short positions have been covered.

Fund managers have essentially squared their positions in crude and fuels and are remaining on the sidelines until the economic outlook becomes clearer.

There are three main scenarios for the global economy this year: resumption of strong growth; an extended soft patch; or a slump into recession.

In the first scenario, crude and fuel prices will likely rise, while in the second and third they are likely to remain around current levels or fall further.

Fund managers’ cautious positioning in oil suggests they see roughly equal probabilities for all three outcomes at present.

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

Related columns:

- Hedge funds dump crude and diesel as economic outlook darkens (Reuters, Jan. 8)

- Dollar cycle may be about to turn, supporting oil prices (Reuters, Jan. 4)

- here">U.S. economy flashes warning signs of impending slowdown (Reuters, Jan. 3)

- Fear sends equity and commodity prices tumbling in 2018 (Reuters, Jan. 2)

Editing by Dale Hudson

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