John Kemp

LONDON, (Reuters) – Portfolio investors sold petroleum last Wednesday as concerns over Russia’s disruption to exports outweighed worries about a slowing Chinese economy and Europe.

The equivalent of 11,000,000 barrels were sold by hedge funds and money managers in six important futures and options contracts related to petroleum in the week up to April 5.

According to records from regulatory bodies and exchanges, four weeks ago funds were sold. The result was a net loss of approximately 188 million barrels in their long-term position.

Light sales were seen at NYMEX (-4million barrels), ICE (NYSE;) WTI (3 million), U.S. petrol (-2 million), and European gasoline oil (-4million) in the most recent week. There was also little buying of U.S. Diesel (+1 million).

Bullish long positions were reduced by 8 million barrels while the number of bearish short positions was increased by 4 million barrels (https://tmsnrt.rs/3xjwVae).

Since the beginning of 2013, fund managers maintained a bullish bias. Long positions have outnumbered short positions by 4.64 to 1, which is the ratio in the 59th percentile.

However, overall positioning has been more prudent with a net long position combined of 542million barrels (36th%) down from 761million (80th%) in mid-January.

Hedge funds and traders have reduced the total amount of options futures positions by 1,142,000,000 barrels for seven weeks consecutively (18%).

It is now more costly and more risky to maintain existing positions and create new ones due to increased uncertainty and volatility.

The supply side is safe. There’s no danger of Russian oil and product exports being disrupted. Instead, it has the assurance of massive releases of up to 240,000,000 barrels of US strategic stock.

The demand side is facing increasing risks, including the worsening coronavirus infection in Shanghai and other areas of China. There also appears to be evidence of a slowdown of the North American and European business cycles.

The hedge fund industry has been mildly bearish on crude oil’s outlook, while remaining slightly bullish on middle distillates like diesel, jet fuel, and European gasoline oil.

In middle distillates funds were sold eight times in the past nine weeks. They have lost a total 72 million barrels (50%).

For most money managers, the projected petroleum production-consumption balance has become less tight as the economy struggles, while shortages of diesel and jet fuel are expected to hold crack spreads a little firmer.

Other columns:

Reuters, April 4: Triple uncertainty in oil for hedge funds

Reuters, April 1.

– China’s cooling economy takes some heat out of commodity prices (Reuters, March 31)

– Oil positions in hedge funds caught between recession and sanctions (Reuters, 29 March)

John Kemp works as a Reuters analyst. His views are his alone