Petroleum markets were hit by a second week of heavy investor sales last week as fund managers became convinced the planned G7 price cap would be set and enforced in a manner that won’t interrupt Russia’s crude exports.
Fastest rate
Hedge funds and other money managers sold the equivalent of 90 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Nov. 22.
Sales over the two most recent weeks totalled 149 million barrels, the fastest rate since early March, in the immediate aftermath of Russia’s invasion of Ukraine.
Similar to the week before, last week’s selling was concentrated in crude (-89 million barrels), specifically in Brent (-71 million barrels).
Two-week crude sales totalled 137 million barrels, with Brent totalling 100 million barrels, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.
The number of crude positions, WTI as well as Brent, fell to just 306 million barrels (9th percentile for all weeks since 2013) down from 443 million barrels (40th percentile) on Nov. 8.
The ratio of bullish long positions to bearish short ones fell to 3.28:1 (27th percentile) from 5.36:1 (62nd percentile) two weeks earlier.
Chartbook: CFTC and ICE commitments of traders
For the last three months, portfolio manager sentiment has been torn between bearishness from the business cycle downturn and bullishness from probable production losses as a result of the price cap and cuts by OPEC⁺.
In October and early November, concerns about the price cap’s impact on Russia’s exports, fuelled by the unexpectedly aggressive output cuts announced by OPEC⁺, tilted this balance in a bullish direction.
Since then, however, concerns about the slowing economy and China’s coronavirus epidemic have become more salient, while investors assume the cap will be set and enforced less aggressively, turning the balance bearish again.
Heightened bearishness has been associated with a small but significant cycle of short selling by fund managers in the NYMEX WTI contract, starting shortly after Oct. 11 but accelerating noticeably after Nov. 11.
But the extremely low number of fund positions in all contracts implies there is still a high level of uncertainty about the cap’s implications, and more generally which of these contending influences will prove decisive.
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Source: XM
