A drilling rig is seen in the Loma Campana Vaca Muerta shale oil and gas drilling site, own by Argentina's state-controlled energy company YPF, in the Patagonian province of Neuquen, Argentina June 22, 2017. Picture taken June 22, 2017. REUTERS/Juliana Castilla
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LONDON, Dec 13 (Reuters) - Hedge fund selling of oil futures and options slowed in the most recent week, after a tidal wave of selling the week before, probably indicating the liquidation cycle is near its end.
Hedge funds and other money managers sold the equivalent of 19 million barrels in the six most important futures and options contracts in the week to Dec. 7, down from 131 million in the week to Nov. 30.
Sales over the last nine weeks have now totalled 313 million barrels, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.
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The most recent week saw further sales of Brent (-13 million barrels), NYMEX and ICE WTI (-3 million), European gas oil (-2 million) and U.S. gasoline (-2 million) but small purchases of U.S. diesel (+1 million).
Portfolio managers last week cut their combined position across the six contracts to just 558 million barrels (in the 40th percentile for all weeks since 2013) down from 871 million (79th percentile) on Oct. 5.
But the reduced rate of selling suggests the most severe phase of liquidation associated with the new Omicron variant of coronavirus has now passed its peak.
(Chartbook: https://tmsnrt.rs/33g0NqQ)
On the crude side, hedge funds' Brent positions have been more than halved to just 154 million barrels (20th percentile) down from 333 million barrels (69th percentile) nine weeks ago.
The ratio of bullish long positions to bearish short ones in the crude benchmark has fallen to just 2.7:1 (23rd percentile), while inflation-adjusted prices are now in line with the long-term average.
The combination of well-below average positioning and near to average real prices is likely to make this a relatively attractive entry point for hedge fund managers – provided the upsurge in coronavirus cases does not push the global economy back into recession.
John Kemp is a Reuters market analyst. The views expressed are his own.
Related columns:
- Oil market hit by wave of hedge fund liquidation (Reuters, Dec. 6) read more
- Oil positions and prices back to neutral after Omicron-triggered flash crash (Reuters, Nov. 30) read more
- Oil futures hit by heavy selling (Reuters, Nov. 22) read more
- Hedge funds put brakes on oil buying as economy concerns grow (Reuters, Nov. 1) read more
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Editing by David Evans
Our Standards: The Thomson Reuters Trust Principles.
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