Hedge Funds Are Sitting on A Fence of Oil

Dow Jones London, 20 July 2020  Hedge funds' positions in crude and oil products remain volatile as uncertainty over the future of oil prices and the  Coronavirus pandemic adds to the normal summer slowdown.

Hedge funds and other fund managers bought the equivalent of 24 million barrels of the six most important oil futures and options contracts in the week ending July 14.

The purchase reverses the previous week's 21 million barrel selloff and continues what has been a marked small rise in oil holdings over the past month.

Last week's buying was concentrated on Brent (11 million barrels) and European diesel (7 million barrels), with smaller purchases of NYMEX and ICE WTI crude (1 million barrels), US gasoline (5 million barrels) and US diesel (1 million barrels).

The focus on Europe may reflect concerns about the surge in COVID-19 cases in the US and its potential impact on oil demand.

Overall, hedge funds are neutral on oil, with a slight bias towards crude over refined products.

Net long positions in all six contracts (642 million barrels) are now in line with the average (641 million barrels) of the past seven years.

The six contracts have a long-short ratio of 4.2:1, close to the median of 4.4:1 over the past seven years.

However, net positions in the three contracts (580 million barrels) were slightly above average (535 million barrels).

Portfolio managers seem convinced by OPEC+ 's determination to eliminate excess crude inventories, but they remain concerned about the possibility of a rebound in the epidemic and a continued decline in oil demand, which explains their preference for crude over refined products.

Combined with a lack of important new information on production or demand over the past four weeks, a stagnation in spot prices and calendar spreads, and the start of the summer holidays in the main trading centres, most fund managers seem intent on staying on the sidelines for now.

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