London — Hedge fund managers remain deeply divided about what matters more for the future direction of oil – intensifying fears about a global recession or Saudi Arabia’s production cuts and other supply disruptions.
Hedge funds and other money managers sold futures and options equivalent to 25 million barrels in the six most important contracts linked to petroleum prices in the week to Aug. 6.
But the fund sales essentially reversed purchases of 20 million barrels the previous week and there has been little change in the net position since the middle of June.
The most recent week saw portfolio managers sell Brent (-13 million barrels), U.S. gasoline (-8 million), U.S. heating oil (-1 million) and European gasoil (-13 million) while buying NYMEX and ICE WTI (+9 million).
In most cases the net position is more or less the same as it was seven weeks ago; the one exception is U.S. heating oil, where a small net short position has been transformed into a small net long one.
Position changes have probably been dampened by the seasonal absence of senior trading staff during the summer holidays across North America and Europe.
More generally, the hedge fund community is unsure about what matters more – the slowdown in consumption growth resulting from the U.S.-China trade war or the slowdown in production growth resulting from OPEC+ cuts.
Funds hold bullish long positions equivalent to 833 million barrels, down from a recent high of more than 1 billion barrels in April, but up from less than 700 million barrels at the start of the year.
But portfolio managers also hold 256 million barrels of bearish short positions, the largest number of bets on a further fall in prices since January.
From a positioning perspective, the balance of risks is roughly equal, with the potential for a liquidation-driven fall in prices more or less matched by the risk of a short-covering rally.
If structural long and short positions in petroleum futures and options are excluded from the analysis, hedge fund managers hold a roughly zero active position overall.
Views are likely to remain bifurcated until either the extent of the trade war economic risk or the impact of U.S. sanctions on some supplier countries becomes clearer.
- John Kemp, Reuters