By John Kemp
LONDON, March 22 (Reuters) - Portfolio investors dumped
petroleum futures and options at one of the fastest rates on
record in the early stages of the banking crisis, as traders
anticipated an increased probability of a recession hitting oil
consumption.
Hedge funds and other money managers sold the equivalent of
139 million barrels in the six most important futures and
options contracts over the seven days ending March 14.
The volume of sales was the 12th largest in the 522 weeks
since ICE Futures Europe and the U.S. Commodity Futures Trading
Commission started to publish records in this form in 2013.
Fund managers have sold a total of 148 million barrels since
the end of January, taking their combined position to 432
million barrels (20th percentile for all weeks since 2013).
In the most recent week, there were heavy sales of Brent
(-65 million barrels), NYMEX and ICE WTI (-59 million), U.S.
gasoline (-12 million) and European gas oil (-7 million), with
only minor buying of U.S. diesel (+4 million).
Investors have become much more cautious about the outlook
for oil prices since the end of January in response to
persistent inflation, rising interest rates and a crisis of
confidence engulfing banks in North America and Europe.
Bullish long positions outnumber bearish long positions by a
ratio of 3.42:1 (37th percentile) down from 5.93:1 (80th
percentile) on January 24.
Chartbook: Investor positions in petroleum
In November 2022, far more U.S. banks expected to expand
their balance sheets over the next six months (26 out of 80
institutions) than reduce it (8 of 80), according to the Federal
Reserve’s Senior Financial Officer Survey.
As recently as January 2023, only a minority of banks said
they had tightened credit standards, imposed tougher conditions
or increased spreads over the last three months, according to
the Fed’s Senior Loan Officer Opinion Survey.
In the wake of the banking crisis however, credit conditions
in North America and Europe are set to tighten significantly as
banks fortify their balance sheets to protect themselves against
possible runs.
Stress-driven tightening will amplify the tightening already
underway as a result of central-bank driven interest rate
increases.
Reduced credit availability to households and businesses,
hitting the most marginal borrowers hardest, is an extra
headwind that will likely lead to slower economic growth and a
lower trajectory for petroleum consumption.
Related column:
- U.S. bank failure places oil prices under pressure (March
13, 2023)
John Kemp is a Reuters market analyst. The views expressed
are his own
(Editing by Jan Harvey)
