Portfolio investors have become less bearish about the outlook for U.S. crude oil prices as inventories fall, but the rest of the petroleum complex continued to see light selling at the end of the seasonal holiday slowdown.
Hedge funds and other money managers purchased the equivalent of 19 million barrels in the NYMEX and ICE U.S. crude (WTI) futures and options contracts over the seven days ending on August 29.
As a result, the WTI net position rose to 153 million barrels (14th percentile for all weeks since 2013), up from a low of just 46 million (the second-lowest on record) on June 27.
The ratio of bullish long positions to bearish shorts climbed to 2.70:1 (25th percentile), up from 1.27:1 (1st percentile) over the same period.
Bearish short positions in the premier NYMEX WTI contract had been reduced to just 49 million barrels, down from 136 million.
The reduction in WTI shorts has coincided with a sharp depletion in U.S. crude inventories (-29 million barrels) especially around the NYMEX delivery point at Cushing in Oklahoma (-14 million).
Total commercial crude inventories had fallen into line with the prior ten-year average on August 25 while stocks at Cushing had depleted to almost 30% below the average.
Chartbook: Oil and gas positions
In the rest of the petroleum complex, there were sales in Brent (-16 million barrels) and very small sales in U.S. gasoline (-5 million) and U.S. diesel (-1 million) with no change in European gas oil.
Overall, the hedge fund community remains more bullish towards refined fuels given the low inventories of gasoline and especially diesel around the world but cautious on crude.
U.S. NATURAL GAS
For the second week running, investors sold U.S. natural gas futures and options amid forecasts for a strong El Niño that would likely cut heating demand during the winter of 2023/24.
Hedge funds and other money managers sold the equivalent of 479 billion cubic feet of gas futures and options over the seven days ending on August 29.
Sales over the two most recent weeks totalled 776 billion cubic feet, according to position records filed with the U.S. Commodity Futures Trading Commission.
In consequence, the net position has been transformed into a small short of 69 billion cubic feet (29th percentile for all weeks since 2010) from a long of 707 billion (47th percentile) on August 15.
Futures prices for deliveries in December 2023 had fallen below $3.50 per million British thermal units on September 1 from almost $3.85 in mid-August.
Surface waters of the central and eastern equatorial Pacific Ocean are warming with a speed and intensity that has been consistent in the past with a strong El Niño between December and February.
In the last 50 years, strong El Niño episodes have cut U.S. heating demand by an average of 7%, with the strongest impact on the northernmost tier of states from Washington through Illinois to Maine.
Hedge fund managers have been trying to get bullish towards U.S. gas prices, and the inventory surplus inherited from 2022 has been shrinking.
But the prospect of a warmer-than-average winter has forced a re-evaluation and taken some of the bullishness out of the market.
Related columns:
- Depleting U.S. crude inventories lift oil prices (August 31, 2023)
- Prospect of strong El Niño weighs on U.S. gas prices (August 30, 2023)
- Crude oil prices stalled as hedge funds sold (August 29, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
