Fund managers sold petroleum last week at the fastest rate since successful coronavirus vaccines were announced in November, as a resurgence of infections and a loss of upward price momentum triggered profit-taking.
Hedge funds and other money managers sold the equivalent of 88 million barrels of petroleum futures and options in the week to March 23, the fastest rate of selling since Nov. 3, according to exchange and regulatory data.
The heaviest selling was concentrated in Brent (-51 million barrels) but there were also sales in NYMEX and ICE WTI (-21 million), U.S. gasoline (-4 million), U.S. diesel (-5 million) and European gasoil (-8 million).
Most of the sales were driven by the liquidation of existing bullish long positions (which were reduced by 73 million barrels) rather than the creation of new bearish short ones (just 16 million barrels of shorts were added).
Prior to the sell-off, portfolio managers’ positions had become lopsided, with a net position of 913 million barrels, which was in the 83rd percentile for all weeks since 2013.
Long positions outnumbered short positions by a ratio of 5.5:1, in the 75th percentile for all weeks since 2013
Since at least the start of 2015, similar lopsided positions have normally preceded a sharp reversal in the previous price trend.
With so many funds having already placed a bullish bet on the direction of oil prices, and few short positions left to be covered, the market had become vulnerable to any setback.
In fact, flat prices and calendar spreads had already stopped rising from the middle of February, signalling a loss of upward momentum.
The resurgence of infections in Europe, concerns about the speed of vaccine deployments, and the prospect of another delay to the resumption of international air travel proved enough to trigger a wave of profit-taking.
The recent bout of selling has skimmed some of the frothiness off the top of the market.
But the hedge fund community is still very bullish towards oil, with a net position of 824 million barrels (76th percentile) and long/short ratio of 4.75 (66th percentile), just slightly more cautious than a few weeks ago.
Editing by David Evans