Despite a slight uptick in bullish bets last week, portfolio managers have slashed their long positions in oil futures over the past two months, fearing slowing demand and rising supply.
In the week to August 27, hedge funds and commodity trading advisors were net buyers of the equivalent of 32 million barrels in the six most traded crude and petroleum futures, following net selling of 48 million barrels during the previous week, per data from trade exchanges compiled by energy analyst John Kemp in his blog.
Extremely Bearish Positioning
Yet, the buying in the latest reporting week did little to reverse the more than halving of the bullish bets in oil futures since early July.
Traders continue to be highly bearish on oil amid concerns about global oil demand, especially in the world’s top crude oil importer, China. The prospect of OPEC+ adding more supply has also weighed on sentiment this week, but today, OPEC+ decided to delay output hikes for at least another two months.
Traders and analysts fear that the market won’t absorb additional barrels amid slower-than-expected demand and rising non-OPEC+ supply, especially from North America and South America—the U.S., Canada, Brazil, and Guyana.
In the week to August 27, hedge funds and other portfolio managers added fresh longs in Brent Crude, driven by the halt to part of Libya’s oil production over a political standoff between the rival governments in the east and west.
As a result, the net long position – the difference between bullish and bearish bets – jumped by 31% to 81,000 lots in the week to August 27. At the same time, demand for the U.S. benchmark WTI was relatively muted. Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a commentary on traders’ positioning.
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Overall, the combined net long at 267,000 lots “remains near the bottom of the long-term range due to relatively weak price action, as traders remain skeptical about crude’s upside potential amid OPEC+ production increases and China’s demand softness,” Hansen said.
The positioning of the hedge funds is so bearish that there is more than sufficient headroom to cut shorts and add longs. But since August 27, the end of the latest reporting period, more bearish news and data have piled up to further weigh on market sentiment and oil prices.
Fed Interest Rate Cuts?
Even with the prospect of the Fed beginning to ease monetary policy later this month, oil market participants continue to fear that global oil demand has been weaker during the peak summer demand period and that China has yet to introduce additional stimulus to boost its economy and drive oil demand higher.
It will take a bullish end-of-summer demand reading in the coming weeks and signs of falling commercial inventories globally to lift oil prices and make traders more bullish on the commodity.
By Tsvetana Paraskova for Oilprice.com