Oil traders and bond traders cannot both be right.
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John Kemp is a Reuters market analyst. The views expressed
are his own.
(Editing by Bernadette Baum)
(Repeats column published on Jan. 30 without changes to text.)
By John Kemp
LONDON, Jan 30 (Reuters) - Portfolio investors have
piled into petroleum futures and options at the fastest rate
since the first successful coronavirus vaccines were announced
in late 2020.
China’s exit from a zero-COVID strategy, along with hopes
the global economy can avoid a recession and low oil
inventories, have contributed to an extraordinary wave of buying
across the petroleum complex.
Hedge funds and other money managers purchased the
equivalent of 232 million barrels in the six most important
futures and options contracts over the six weeks ended Jan. 24.
Purchases were the fastest for any six-week period since
December 2020, according to an analysis of position records
published by ICE Futures Europe and the U.S. Commodity Futures
Trading Commission.
In the most recent week, fund managers purchased the
equivalent of 70 million barrels, mostly in Brent (+40 million)
and to a much lesser extent NYMEX and ICE WTI (+4 million).
But the wave of buying spread beyond crude to encompass U.S.
gasoline (+11 million barrels), U.S. diesel (+8 million) and
European gas oil (+7 million).
Refinery shutdowns linked to seasonal maintenance as well as
sanctions on Russia’s diesel exports are expected to deplete
fuel inventories further.
Chartbook: Investor petroleum positions
The net position across all six contracts climbed to 575
million barrels (47th percentile for all weeks since 2013), up
from 343 million barrels (11th percentile) on Dec. 13.
The net position is at highest since Nov. 8 and before that
June 14.
There was a strongly bullish orientation, with long
positions outnumbering short ones by a ratio of 5.93:1 (80th
percentile) up from 2.58:1 (23rd percentile) five weeks earlier.
The most bullish ratios are concentrated in Brent (86th
percentile), U.S. gasoline (85th percentile) and U.S. diesel
(86th percentile), with less optimism about European gas oil
(65th percentile) and WTI (41st percentile).
Refinery maintenance in the United States is expected to
deplete fuel inventories there but leave WTI prices trailing
Brent, which probably explains the differential performance.
Hedge funds became more bullish about Brent than at any time
since May 2019, before the pandemic erupted and upended the oil
industry.
There is a growing tension at the heart of investor
positioning.
In the bond market, investors are increasingly confident
inflation will moderate, allowing central banks to bring an
early end to interest rate rises.
In the oil market, investors are increasingly sure continued
growth will cause supplies to tighten and send prices higher.
But that would be inflationary – and contradicts to the
benign outlook assumed by the bond market.
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