London — Hedge funds continued to rotate their positions from crude to fuels, especially gasoline, in light trading during the summer vacation period in North America, Europe and the Middle East.
Hedge funds and other money managers sold the equivalent of 10 million barrels in the six most important petroleum futures and options contracts in the week to Aug. 25.
Those sales reversed purchases of 12 million barrels the week before, but the overall position has not changed significantly since mid-July.
Within the global total, however, fund managers have continued to sell crude and buy fuels, a trend evident last week as well.
Portfolio managers sold NYMEX and ICE WTI (-15 million barrels), U.S. diesel (-3 million) and European gasoil (-5 million) while buying Brent (+4 million) and U.S. gasoline (+9 million).
Positions in crude and fuels have converged on the 57-58th percentile for all trading days since the start of 2010, up from the 30th percentile for fuels but down from the 68th percentile for crude at the start of June.
In the absence of strong signals about the overall price direction, fund managers are concentrating on relative value plays, speculating refining margins will have to improve from their recent very depressed levels.
Depressed refining margins are unlikely to be sustainable, suggesting fuel prices will perform more strongly than crude in the medium term, explaining the rotation in positions.
Follow us on twitter