Hedge funds are reducing their risk exposure to crude oil and refined products against a backdrop of increasing uncertainty over a resurgence in the coronavirus and potential double-dip recession.
However, fears over the impact on oil consumption are offset by the growing likelihood that OPEC+ will postpone its output increase scheduled for the start of next year and signs that refiners are reducing excess stocks of distillates.
Hedge funds and other money managers purchased the equivalent of 31 million barrels in the six most important petroleum-linked futures and options in the week to Oct. 13.
Portfolio managers sold the equivalent of 12 million barrels of existing bullish long positions but repurchased 43 million barrels of previous bearish short positions, reducing exposure on both sides of the market (tmsnrt.rs/3dFwLhB).
In terms of net changes, funds were buyers of Brent (+38 million barrels) and European gasoil (+5 million) but sold NYMEX and ICE WTI (-9 million) and U.S. gasoline (-2 million) while leaving U.S. diesel unchanged.
Fund managers have become less bearish, especially towards Brent, and to a lesser extent distillates, rather than more bullish about the state of the petroleum market.
Position changes are consistent with a stalling economic recovery but increasing confidence that OPEC+ will be left with no choice but to postpone scheduled production increases for at least three months.
– Shrinking U.S. oil stocks point to market rebalancing (Reuters, Oct. 8)
– Hedge funds resume oil sales (Reuters, Oct. 5)
– Hedge funds race to cover crude short positions (Reuters, Sept. 28)
– U.S. refiners bringing diesel stocks under control (Reuters, Sept. 25)