Saudi Arabia's unilateral crude production cut of 1 million barrels per day for the month of July announced at the end of the OPEC+ meeting on June 4 had little immediate impact on investors’ positions in the oil market.
Investors have put more emphasis on the slowdown in the global economy, the faltering rebound in China after the country emerged from its zero-coronavirus policy, and the negative implications for consumption.
Hedge funds and other money managers purchased the equivalent of 28 million barrels in the six most important petroleum futures and options contracts over the seven days ending on June 6.
Funds bought Brent (+22 million barrels), U.S. diesel (+7 million) and European gas oil (+4 million) but sold NYMEX and ICE WTI (-2 million) and U.S. gasoline (-3 million).
The net position across all six contracts was just 324 million barrels (9th percentile for all weeks since 2013) with bullish long positions outnumbering bearish short ones by 2.16:1 (16th percentile).
Portfolio investors are especially bearish about crude, with a net position of 269 million barrels (7th percentile) and a long-short ratio of 2.39:1 (14th percentile).
Chartbook: Oil and gas positions
Saudi Arabia’s oil minister described current OPEC+ policy as “proactive, preemptive and precautionary” at a business conference in Riyadh on June 11 ("Saudi oil minister says OPEC⁺ is tackling market uncertainties", Bloomberg, June 11).
Saudi Arabia’s cut will remove 30 million barrels from the production-consumption balance in the third quarter but did little to engender more bullishness about crude prices, although it may have stemmed a deeper decline.
In NYMEX WTI, funds still held a gross short position of 93 million barrels, betting on further price falls, down only slightly from 98 million the previous week.
The hedge fund community has become especially bearish about the outlook for European gas oil given indications the region is already in recession.
Funds were net short by 12 million barrels (3rd percentile) with a long-short ratio of 0.73:1 (2nd percentile).
U.S. NATURAL GAS
Investors remain cautious about a near-term rebound in U.S. gas prices as inventories remain persistently high despite a slowdown in drilling and the re-opening of Freeport LNG’s export terminal.
Hedge funds and other money managers sold the equivalent of 179 billion cubic feet across the two major futures and options contracts over the seven days ending on June 6.
As a result the fund community held a net short position of 79 billion cubic feet (29th percentile for all weeks since 2010) with a long-short ratio of 0.97:1 (29th percentile).
Working gas stocks were +282 billion cubic feet (+12% or +0.68 standard deviations) above the prior ten-year seasonal average on June 2 and the surplus has shown no sign of narrowing for the last three months.
Prices are close to their lowest levels for three decades, after adjusting for inflation, implying the balance of risks is tilted to the upside in the medium term.
But until there are clear indications excess inventories are being depleted, funds are finding it hard to become bullish and prices are struggling to rise.
Related columns:
- U.S. gas inventories start summer well above normal (June 9, 2023)
- Saudi Arabia’s “lollipop” has yet to sweeten oil prices (June 6, 2023)
- Investors ignore OPEC+ to focus on consumption outlook (June 5, 2023)
- U.S. oil and gas output still rising in response to high prices last year (June 1, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
