LONDON – Hedge funds sold crude oil and refined products at the fastest rate for more than two years in the first week of September, as the summer trading lull ended abruptly and bullishness towards oil evaporated.
Hedge funds and other money managers sold the equivalent of 171 million barrels in the six most important petroleum futures and options contracts in the week ending on Sept. 8, the fastest rate of selling since July 2018.
Portfolio managers dumped previous bullish long positions (-87 million barrels) and added new bearish short ones (+84 million barrels) in roughly equal measure as part of a wholesale turnaround in sentiment.
Funds were heavy sellers across the board, including of Brent (-67 million barrels), NYMEX and ICE WTI (-57 million), European gasoil (-25 million), U.S. gasoline (-12 million) and U.S. diesel (-9 million).
Funds have cut their combined net long position in the six contracts to 443 million barrels, down by a third from a recent high of 669 million in late July, with three-quarters of those sales occurring in the first week of September.
The ratio of hedge funds’ long to short positions has slumped to 2.25:1, down from a high of 4.37:1 on July 21, according to records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.
In barrels, the combined hedge fund position tumbled to the 26th percentile last week, down from the 55th percentile the week before and a recent high of the 64th percentile in late July.
In terms of the long/short ratio, the hedge fund position slumped to the 23rd percentile, down from the 41st the week before, and the 63rd in July (tmsnrt.rs/32pzgAu).
Hedge funds have been tempering their second-quarter bullishness and gently selling crude and products, especially middle distillates such as diesel and gasoil, for much of the last two months.
Waning bullishness has been evident in the physical and futures markets for Brent, where calendar spreads have been weakening gradually but steadily since late July.
In the first week of September, however, the market reached a tipping point and gentle selling pressure turned into a flood.
The resurgence of coronavirus, signs OPEC+ countries are becoming weary of output cuts, and the lack of major disruption to U.S. oil production from Hurricane Laura were all likely triggers, singly and in combination.
As a result, the hedge fund community swung from being neutral or even mildly bullish towards oil in late August to strongly bearish by the end of the first week this month.
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