Oil attracts heavy fund buying as prices bounce

Hedge funds purchased petroleum last week at the second-fastest rate this year after Hurricane Ida disrupted offshore oil wells and onshore refineries in the Gulf of Mexico.

Money managers purchased the equivalent of 60 million barrels in the six most important petroleum futures and options contracts in the seven days to Aug. 31.

Portfolio managers were sellers of NYMEX and ICE WTI (-1 million barrels) but buyers of U.S. gasoline (+6 million), U.S. diesel (+7 million), European gas oil (+21 million) and Brent crude (+28 million).

In the previous 10 weeks funds had sold the equivalent of 268 million barrels, according to position records from ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

But in the two most recent weeks, the rate of selling had decelerated and prices had started to rise, heralding a probable turning point and creating favourable conditions for a new wave of buying.

In this context, the interruption to offshore oil production in the Gulf of Mexico and refining activity in Louisiana, which will tighten the availability of crude and refined fuels, gave extra impetus to the turnaround.

Fund managers have become especially bullish about prices for middle distillates such as U.S. diesel and European gas oil, where the ratio of bullish long positions to bearish short ones has climbed to 8.6 to 1.

The bullish ratio was the highest since October 2018, before the coronavirus crisis and before the trade war between the United States and China intensified, adversely affecting global trade volumes.

With freight demand expected to remain strong while the resurgent pandemic limits aviation and private motor traffic, funds are anticipating the imbalance in refined product demand will worsen, intensifying the diesel shortage.

© Thomson Reuters 2021

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