London — Portfolio investors resumed selling petroleum last week as fears about conflict in the Middle East disrupting production were replaced by concerns about rising interest rates and the impact on the global economy and oil consumption.
Hedge funds and other money managers sold the equivalent of 14 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Oct. 24.
Funds were net sellers for the fourth time in five weeks, with sales totaling 201 million barrels since Sept. 19, according to records filed with ICE Futures Europe and the U.S. Commodity Futures Trading Commission.
The most recent week saw sales of Brent (11 million barrels), NYMEX and ICE WTI (4 million) and U.S. diesel (4 million) only partially offset by purchases of U.S. gasoline (3 million) and European gas oil (1 million).
In a markedly downbeat shift in sentiment, the most recent sales were primarily driven by the creation of new bearish short positions (+20 million) which outpaced the creation of new bullish longs (+6 million).
This was particularly true on the crude side, where new shorts (+17 million) were created at more than five times the rate of new longs (+3 million).
In NYMEX WTI, fund managers appeared to have embarked on a new cycle of short sales as fears about a squeeze on stocks around the Cushing delivery point were replaced by concern about the impact of higher interest rates.
Short positions in NYMEX WTI climbed to 41 million barrels on Oct. 24 up from a 16-month low of 19 million barrels on Oct. 3.
Overall, fund managers are much more bullish about Brent (supported by OPEC+ output cuts) and U.S. diesel (supported by inventories well below the long-term seasonal average).
But they are bearish about WTI (as concerns about the squeeze on Cushing stocks unwind); U.S. gasoline (likely to see a surplus as a co-product of increased diesel production); and European gas oil (hit by a prolonged regional recession).
U.S. NATURAL GAS
Fund managers were still struggling to become outright bullish about the outlook for U.S. gas despite futures prices being very low in real terms.
Hedge funds and other money managers sold the equivalent of 125 billion cubic feet (bcf) of gas futures and options over the seven days ending Oct. 24.
Front-month futures prices have averaged just $3.12 per million British thermal units so far in October, in only the 13th percentile for all months since the turn of the century, after adjusting for inflation.
From a statistical perspective, the very low inflation-adjusted base means there must be more potential for prices to rise rather than fall.
But after recent sales, funds held a net long position of 410 bcf (41st percentile for all weeks since 2010) down from a recent high of 775 bcf (49th percentile) on Oct. 10.
Very low prices have eliminated much of the surplus inventories accumulated in the second half of 2022 and early 2023, but have not yet forced the market into a deficit that might support much higher prices in future.
Working gas inventories in underground storage were still 79 bcf (2% or 0.32 standard deviations) above the prior ten-year seasonal average on Oct. 20.
The surplus has narrowed from 299 bcf (+12% or +0.81 standard deviations) at the end of June but the narrowing had stalled since the start of October suggesting the market has found a temporary equilibrium at current prices.
*John Kemp, editing: Kirsten Donovan – Reuters