Funds sell oil at fastest rate for 15 weeks as economic outlook worsens: Kemp

By John Kemp

LONDON, June 27 (Reuters) - Investors sold petroleum last week at the fastest rate since just after Russia’s invasion of Ukraine, as the deteriorating economic outlook trumped fears about the impact of sanctions on oil supplies.

Hedge funds and other money managers sold the equivalent of 71 million barrels in the six most important petroleum futures and options contracts in the week to June 21 (Link).

The rate of selling was the fastest since the week ending March 8, shortly after the invasion, based on position records from ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Sales over the last two weeks have totalled 82 million barrels, largely reversing purchases of 99 million over the previous four weeks, as traders’ focus has shifted from sanctions to the gathering economic downturn.

In the most recent week, sales were led by the liquidation of existing bullish long positions rather than the creation of new bearish short ones, and by crude oil rather than refined products.

Selling was concentrated in NYMEX and ICE WTI (-35 million barrels) and Brent (-30 million) with small sales in U.S. diesel (-4 million) and U.S. gasoline (-3 million) and insignificant purchases of European gas oil (+1 million).

Existing bullish long positions were cut by 65 million barrels while new bearish shorts were initiated amounting to just 6 million, implying profit-taking among formerly bullish fund managers.

The net position across all six contracts was cut to just 564 million barrels (which is in only the 41st percentile for all weeks since 2013) down from 647 million barrels (56th percentile) two weeks ago.

The ratio of long to short positions fell to 5.68:1 (74th percentile) from 6.68:1 (84th percentile) a fortnight earlier.

Policymakers from North America and Europe are still exploring ways to step up sanctions on Russia’s crude and diesel exports, which is supporting positions and oil prices.

But the potential impact is more than offset by signs economies on both sides of the North Atlantic are starting to weaken, which is likely to weaken consumption of both crude and middle distillates.

Related columns:

- Diesel demand set to drop as economies enter recession (Reuters, June 23)

- Hedge fund oil bulls checked as interest rates rise (Reuters, June 20)

- Surging oil prices show business cycle slowdown is inevitable (Reuters, June 14)

- Brent bulls get a boost from EU sanctions on Russia (Reuters, June 13)

John Kemp is a Reuters market analyst. The views expressed are his own
Editing by Jan Harvey

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.