Chartbook: Oil and gas positions
WTI RALLY PRIMED Prior to the most recent week, positioning in WTI had become especially bearish, leaving the market primed for a sharp short-covering rally. Hedge funds had reduced their net position in WTI to just 56 million barrels by March 21, the lowest since February 2016 and in only the 1st percentile for all weeks since 2013. Funds’ bullish long positions outnumbered bearish short ones by a ratio of just 1.39:1 on March 21, the lowest since August 2016 and in only the 2nd percentile. Positions had become so stretched towards the downside creating conditions for a sharp rebound if and when the news flow become more bullish or at least less bearish. Even before the OPEC+ announcement, the concentration of bearish shorts and absence of bullish longs seems to have encouraged at least some fund managers to realise profits ahead of the expected recoil. The announcement will likely fuel even more short covering in the near future, which was probably one of the motivations for the decision, announced on a Sunday to maximise its impact when trading resumed on Monday.
U.S. GAS POSITIONS Fund managers are becoming less bearish about the outlook for U.S. gas prices following the full re-opening of Freeport LNG’s export terminal. Hedge funds and other money managers increased their net position in Henry Hub futures and options for the seventh time in eight weeks. Funds purchased the equivalent of 237 billion cubic feet of gas over the seven days ending March 28 taking total purchases to 1,011 billion cubic feet since Jan. 31. Portfolio managers still have a small overall short position of 50 billion cubic feet (30th percentile since 2010) but it has been sharply pared back from 1,061 billion cubic feet (7th percentile) at the end of January.
Related columns: - Fearing credit crunch, hedge funds flee petroleum (March 27, 2023) - U.S. gas prices slump after mild winter leaves big surplus (March 24, 2023) - Investors dumped oil as banking crisis erupted (March 22, 2023) - 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 Kirsten Donovan)