Portfolio investors had become increasingly bearish about the outlook for oil prices in the run up to the meeting of the extended OPEC⁺ group of oil exporters on June 3-4.
Hedge funds and other money managers sold the equivalent of 32 million barrels in the six most important petroleum futures and options contracts over the seven days ending on May 30.
Fund managers were sellers in four of the most recent six weeks, reducing their position by 238 million barrels since April 18, according to records published by regulators and exchanges.
The combined position had been reduced to 296 million barrels (7th percentile for all weeks since 2013) down from 534 million (39th percentile) six weeks earlier.
In a sharp turn in sentiment, the ratio of bullish long positions to bearish short ones had been cut to 2.04:1 (12th percentile) down from 5.00:1 (65th percentile).
Chartbook: Oil and gas positions
During the most recent week, funds were net sellers of crude (-27 million barrels), despite the nearness of the OPEC⁺ policy meeting.
Heavy sales of NYMEX and ICE WTI (-50 million barrels) more than offset significant buying of ICE Brent (+23 million).
The position in WTI was slashed to 88 million barrels (3rd percentile) while the long-short ratio was cut to 1.70:1 (5th percentile).
On the products side, buying of U.S. diesel (+2 million barrels) and U.S. gasoline (+1 million) was more than offset by heavy sales of European gas oil (-8 million).
Position changes were driven more by concerns about a slowdown in the global economy and associated fall in oil consumption than the prospect Saudi Arabia and its allies in OPEC⁺ might cut production further.
Investors were much more bearish about crude than refined fuels, especially gasoline, where low inventories should provide some support in the short term.
Gasoline is expected to be the strongest relative performer because consumption is less exposed to the industrial cycle than either crude or middle distillates such as diesel and gas oil.
U.S. NATURAL GAS
Investors are struggling to become more bullish towards U.S. gas prices as inventories remain persistently high despite a slowdown in drilling and the re-opening of Freeport’s LNG export terminal.
Hedge funds and other money managers sold the equivalent of 140 billion cubic feet over the seven days ending on May 30, according to regulatory data.
The net long position of 53 billion cubic feet (34th percentile for all weeks since 2010) had barely changed in 11 weeks since March 7 when it was 15 billion cubic feet net short (31st percentile).
Working gas inventories were +280 billion cubic feet (+13% or +0.67 standard deviations) above the prior 10-year seasonal average on May 26.
The surplus was essentially unchanged from a surplus of +266 billion cubic feet (+15% or +0.61 standard deviations) in early March.
The persistent surplus has kept gas prices in the 2nd percentile or lower for all trading days since 1990 after adjusting for inflation.
Related columns:
- U.S. industrial recession hits energy consumption (June 2, 2023)
- U.S. oil and gas output still rising in response to high prices last year (June 1, 2023)
- OPEC⁺ credibility on line with talk of more “ouching” (May 24, 2023)
- Hedge funds bearish on crude, more bullish on cracks (May 22, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
