The short-covering rally that had previously propelled petroleum prices higher ran out of momentum last week as prices and positions climbed near to or above long-term averages, blurring the risk-reward calculation.
Position-taking was also likely hit by the traditional seasonal torpor that descends in the middle of August with many senior trading and investment staff across North America and Europe on holiday.
Hedge funds and other money managers made no net change in their combined position across the six most important oil-related futures and options contracts over the seven days ending on Aug. 15.
Purchases of Brent (+20 million barrels), U.S. gasoline (+6 million) and European gas oil (+4 million) were offset by sales of NYMEX and ICE WTI (-29 million) and U.S. diesel (-1 million).
The combined position of 558 million barrels was in the 45th percentile for all months since 2013, while the ratio of bullish long positions to bearish short ones of 4.23:1 was in the 53rd percentile.
The combined position has risen from a recent low of just 282 million barrels (5th percentile) and a long-short ratio of 1.95:1 (10th percentile) at the end of June.
Fund managers were significantly more bullish about the outlook for refined fuels than for crude petroleum, given low inventories of both diesel and gasoline.
Net positions for fuels ranged from the 70th to 80th percentiles while the position in crude was in only the 26th percentile.
Chartbook: Oil and gas positions
U.S. NATURAL GAS
Hedge fund and money manager positions in U.S. natural gas were also unchanged over all in the seven days ending on August 15.
Fund managers reduced both long and short positions by a similar amount (183 billion cubic feet) in what appeared to be a risk-reducing move following the recent run up in both prices and positions.
Funds held a net long position of 707 billion cubic feet (47th percentile for all weeks since 2010) up from a net short position of 1,061 billion cubic feet (7th percentile) at the end of January.
Working gas inventories in underground storage were +188 billion cubic feet (+7% or +0.58 standard deviations) above the prior 10-year seasonal average on Aug. 11.
The surplus has narrowed consistently from +299 billion cubic feet (+12% or +0.81 standard deviations) at the end of June.
Related columns:
- Oil market to tighten modestly in late 2023 (August 17, 2023)
- Hedge funds increasingly bullish about diesel (August 14, 2023)
- U.S. diesel prices surge anticipating a soft landing (August 11, 2023)
- Crude oil and fuels draw funds as sentiment shifts (August 7, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own
