London — Hedge fund sentiment toward crude and products turned sharply more negative at the end of August amid signs of a slow post-epidemic recovery in oil consumption and persistently high inventories.
Hedge funds and other money managers sold the equivalent of almost 40 million barrels in the six most important petroleum futures and options contracts in the week to Sept. 1.
The rate of selling equaled the week to July 28 as the fastest since mid-March, when the epidemic was raging unchecked and major oil exporters were engaged in unrestricted volume warfare.
Portfolio managers were heavy sellers of Brent (-19 million barrels), U.S. diesel (-11 million barrels), European gasoil (-6 million) and U.S. gasoline (-3 million), while making few changes to NYMEX and ICE WTI (+1 million).
The reference period included oil platform and port closures as well as the landfall of Hurricane Laura near the major refining centers on the U.S. Gulf Coast.
But the hedge fund selling in Brent, the international marker, and middle distillates, which are more closely geared to the business cycle, revealed a clear bearish turn in sentiment.
Hedge fund bullish long positions continued to outnumber bearish short ones by a margin of 3.27:1, but the ratio is down from a recent peak of 4.37 on July 21 and has fallen to the lowest since April 28.
Hedge funds have boosted their short positions in crude and fuels to the highest level for 19 weeks, since April 21.
Net positions in crude and products have eased back to the 55th and 50th percentiles respectively for all trading days since 2013.
The anticipated rebalancing of the oil market has stalled for the time being, which has encouraged some funds to switch from a bullish to a more neutral stance, or even start building outright short positions.
(John Kemp is a Reuters market analyst. The views expressed are his own)