Hedge Funds

Column: Funds realise profits, anticipate pullback after oil rally

LONDON (Reuters) - Hedge funds started to realise some profits and anticipate a pull back in crude prices, especially in the United States, after a strong rally saw prices double in less than two months.

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant/File Photo

Hedge funds and other money managers sold the equivalent of 16 million barrels in the six most important petroleum futures and options contracts in the week to June 16.

It was only the second time portfolio managers have been net sellers in the last 12 weeks, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Sales were concentrated in NYMEX and ICE WTI (-24 million barrels) while funds were small buyers of Brent (+2 million), U.S. diesel (+2 million) and European gasoil (+5 million), leaving U.S. gasoline unchanged.

Before last week’s sales, WTI had become the most lopsided and crowded trade, with portfolio managers holding more than seven bullish long positions for every bearish short one.

The bullish tilt in WTI compared with ratios of just 4:1 in Brent, 2:1 in U.S. gasoline and European gasoil, and less than 1:1 in U.S. diesel (

WTI sales were a correction in a market that had started to look stretched and where upward price momentum appeared to have stalled encouraging fund managers to realise some paper profits.

In net terms, WTI sales were the first for 15 weeks. But fund managers have been gradually adding bearish short positions in NYMEX WTI for four weeks running.

A new short-selling cycle appears to have started in late May, slowly at first, then accelerating last week, with short positions up to 62 million barrels from just 44 million on May 19.

Related columns:

- Oil prices no longer especially cheap after strong rally (Reuters, June 19)

- Hedge funds wait for signs of cyclical recovery in oil (Reuters, June 15)

- Oil traders expect stocks to start falling this month (Reuters, June 10)

- Hedge fund buying dries up after oil prices double (Reuters, June 8)

Editing by David Evans