Thursday , June 24 2021

Hedge funds are not sure when oil prices are

After an optimistic start of the year and the best oil prices in January, hedge funds and other cash managers began in February with caution, as concerns for global economic growth exceed (again) OPEC cuts and US sanctions against Venezuela and Iran .

In the last week to 5 February, portfolio managers added longer positions to Brent Crude, but short positions – bets that prices will fall – also rose for the first time this year.

Although the speculative positioning during the week led to a slight rise in the combined net long position – the difference between bullseed and bearish bets – the rise in short positions indicates that hedge funds are now far more indefinite where oil prices will be next.

According to ICE Futures Europe analyst John Kemp, the money managers increased their net long position in the raw materials during the week to 5 February with only 1 million barrels. Long positions – bets that prices will rise – have increased by 15 million barrels. However, short positions have risen almost as long as 13 million barrels in shorts have been added last week.

Raising shorts for the first time this year may suggest that hedge funds have differing views on where Brent prices are moving and that bearish concerns such as the economic slowdown or lack of trade talks between the US and China outweigh the whistling signals such as OPEC cuts, sanctions against Venezuela and growth slowdown in crude oil production in the US.

Due to the closure of the US government, the Commodity Futures Trading Commission (CFTC) will not match the current WTI positioning data until next month. Related: Oil leaps as Saudi plan for further production cuts

Judging by Brent's traders' commitments during the week to February 5, the hedge funds were almost equally divided between adding long and short trousers with slight growths. This compares with a mass retreat in shorts observed in January.

At the end of January, hedge funds and other cash managers began to get rid of the grim expectations of a global recession and a weakening of oil demand, which has kept market participants in most of the fourth quarter of last year.

Still, the main driver for increasing the net long position was the closing of many shorts by the end of 2018, not the renewal of the scourge that oil prices would bring together.

Between early December and late January hedge funds raised their net long position by a total of 96 million barrels and increased their network in seven out of eight weeks. The increase in the net long position since the beginning of December is mainly a result of the closure of the shorts, not a clear sign that the bulls have returned.

Between 11 December and 29 January, short positions declined by more than 60 percent from 122 million barrels to 48 million barrels, but debt increased by only 27 million barrels, as fund managers were less bearish, but certainly not took advantage of the oil price. Related: Formation of a natural gas cartel?

However, during the week of 29 January to 5 February, shorts increased by 28% – most since the end of October and the first increase after four weeks of bears retreat, while the number of the long position increased by 5.2% .

While money managers generally did not decide where Brent Swift is moving, they raised the bullish pledge of gasoline and diesel futures in the last week of reporting after the US sanctions against Venezuela began to restrict supplies of medium and heavy commodities like Venezuela, suitable for processing in gas oil, says Kemp from Reuters.

In the future, hedge funds will seek direction from various bullish and bearish factors. US and Chinese trade talks and concerns about US economic growth will not be attracted, whereas OPEC cuts, US sanctions against Venezuela and Iran, and a possible slowdown in US crude production would make more room for bulls.

By Tsvetana Paraskova for

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