Oil prices retreat as investor sentiment darkens: Kemp
By John Kemp
LONDON, Nov 21 (Reuters) - Oil prices were hit by an abrupt reversal of sentiment last week, with investors selling at the fastest rate for four months, as the economic outlook worsened and fears eased that the G7 price cap on Russian crude would disrupt its exports.
Hedge funds and other money managers sold the equivalent of 59 million barrels of the six most important petroleum futures and options contracts in the week to Nov. 15, the fastest rate since the week ended July 5.
The selling came after fund managers had been buyers in five of the previous six weeks, purchasing a total of 169 million barrels, according to exchange and regulatory position records.
The most recent week saw sales concentrated in Brent (-30 million barrels) and NYMEX and ICE WTI (-19 million) with lighter sales in European gas oil (-5 million), U.S. gasoline (-4 million) and U.S. diesel (-4 million).
Chartbook: CFTC and ICE commitments of traders
Investors had been steadily accumulating bullish long positions in petroleum, especially crude, expecting OPEC⁺ output cuts and the price cap to reduce supplies more than the economic slowdown reduces demand.
But that confidence was dented last week as the economic outlook across Europe and Asia worsened while traders became convinced the cap would have little impact on oil supplies owing to widespread avoidance and evasion.
At the same time, China grappled with the largest outbreak of coronavirus cases for six months, with no sign of an early exit from the cycle of lockdowns, which will continue to depress oil consumption.
As a result, Brent futures prices and calendar spreads retreated as traders prepared for a relatively hard landing for the global economy which will likely cut oil consumption absolutely or at least relative to the previous trend.
- Oil investors set for supply fall to offset weak economy (Reuters, Nov. 15)
- Hedge funds tempted back into crude oil market by limited supply (Reuters, Nov. 7)
- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)
- Oil investors on defensive as recession forces intensify(Reuters, Oct. 24)
John Kemp is a Reuters market analyst. The views expressed are his own.
Editing by Bernadette Baum
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.