LONDON, Nov 20 (Reuters) – Investors have rarely been more bearish about oil prices as a slowing economy and an increase in non-OPEC output lead them to conclude OPEC⁺ production cuts will not prevent a rise in inventories.
Hedge funds and other money managers sold the equivalent of 7 million barrels in the six most important petroleum-related futures and options contracts over the seven days ending on Nov. 14.
Fund managers had sold petroleum in seven of the last eight weeks cutting their position by a total of 338 million barrels since Sept. 19, according to records filed with regulators and exchanges.
Chartbook: Oil and gas positions
As in previous weeks, sales in the most recent week were led by crude (-16 million barrels), especially NYMEX and ICE WTI (-11 million), with some extra sales in Brent (-5 million).
Funds held a net position of just 78 million barrels in NYMEX and ICE WTI on Nov. 14, which was in only the 3rd percentile for all weeks since 2013.
Funds held a larger position of 171 million barrels in Brent, but that was in only the 28th percentile, still significantly bearish.
Investors have not been this bearish on crude since the second quarter of 2023 (when Saudi Arabia and Russia announced extra output cuts) and before that the second quarter of 2020 (during the first wave of the pandemic).
Bullish long positions outnumbered bearish shorts by a ratio of just 2.26:1 (10th percentile) down from 7.76:1 (89th percentile) on Sept. 19.
But the increasing concentration of short positions indicates the market had become increasingly lopsided with a growing risk of a reversal in the previous downtrend in prices.
U.S. GASOLINE
Fund managers purchased futures and options on U.S. gasoline for the fourth week running as the market hunted for a new equilibrium after the collapse of positions and crack spreads in September and early October.
Funds purchased 9 million barrels over the seven days ending on Nov. 14 and had purchased a total of 25 million barrels since Oct. 17.
The net position had doubled to 51 million barrels (46th percentile) on Nov. 14 up from 26 million barrels (19th percentile) four weeks earlier.
After extreme bullishness among fund managers during July and August and bearishness in September and early October, positions reverted to neutral.
U.S. NATURAL GAS
The brief burst of bullishness towards U.S. gas prices triggered by unusually cold weather at the end of October and the start of November has evaporated.
Fund managers sold the equivalent of 342 billion cubic feet (bcf) over the seven days ending on Nov. 14 taking total sales over the two most recent weeks to 722 bcf.
The net position was cut to just 221 bcf (37th percentile for all weeks since 2010) which was not significantly different from 410 bcf (41st percentile) on Oct. 24 or 197 bcf (37th percentile) on Sept. 19.
Front-month gas futures prices have averaged just $3.20 per million British thermal units so far in November 2023, which is in only the 14th percentile for all months since the start of the century.
From a purely statistical perspective, the likelihood is higher that prices will rise rather than fall in the medium term, so fund managers have tried repeatedly to accumulate a bullish long position.
But they have been thwarted by stubbornly high inventories and forecasts for a warmer-than-normal winter as a result of a strong El Niño bringing unusual warmth to the northern tier of states in the United States.
Related columns:
– U.S. gasoline stocks add to crude oil turbulence (November 17, 2023)
– U.S. oil prices slide as stocks accumulate at Cushing (November 16, 2023)
– Oil traders turn bearish, daring OPEC⁺ to cut again (November 14, 2023)
– Oil prices slump as fundamentals reassert themselves (November 9, 2023)
John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X https://twitter.com/JKempEnergy
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