John Kemp, Reuters
EnergiesNet.com 01 17 2023
The bullishness about petroleum prices which flooded through parts of the investment community at the end of 2022 ebbed in the first full week of 2023 as concerns mounted about the global economy and China’s coronavirus wave.
Hedge funds and other money managers sold the equivalent of 17 million barrels in the six most important petroleum-related futures and options contracts over the seven days ending on Jan. 10.
Investors sold a total of 29 million barrels in the two most recent weeks, after purchasing 103 million barrels in the two weeks before, according to position records published by regulators and exchanges.
In the most recent week, there were sales of NYMEX and ICE WTI (-13 million barrels), Brent (-4 million), European gas oil (-3 million) and U.S. diesel (-1 million), only partly offset by purchases of U.S. gasoline (+4 million).
Portfolio managers are more bullish about the outlook for distillate fuel oils such as diesel and heating oil than crude, reflecting the very low inventories of mid-distillates.
Bullish long positions outnumber bearish short ones by a ratio of 3.89:1 (64th percentile for all since 2013) in mid-distillates compared with a ratio of 2.82:1 (21st percentile) for crude.
But confidence in the outlook is low, again especially in crude.
The net position in middle distillates is 60 million barrels (48th percentile) but the net position in crude is just 301 million (9th percentile).
Sluggish output growth from U.S. shale producers, sanctions on Russia’s oil exports, China’s eventual emergence from the coronavirus pandemic and depleted diesel stocks are all contributing to eventual bullishness about prices.
But first investors have to work their way through the slough of despond created by China’s massive wave of coronavirus infections, rising central bank interest rates and the slowing global business cycle.
– Hedge fund petroleum buying paused over year end (Reuters, Jan. 9)
– Bullish oil investors look beyond China’s COVID wave (Reuters, Jan. 3)
John Kemp is a Reuters market analyst. The views expressed are his own
Editing by David Evans