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Column: Hedge funds dump oil, prompting OPEC to signal “tweak”

LONDON (Reuters) - Hedge funds dumped many of their remaining petroleum positions last week as the surging number of coronavirus cases and fresh lockdowns fuelled fears of a second recession in the United States and Europe.

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

In response, Saudi Arabia’s oil minister has said the OPEC+ production agreement could be “tweaked”, implying the presently scheduled increase due to take effect in January could be postponed.

Instead, current production could be continued for three months, or more; the group could even consider further reducing output (“Saudi energy minister says OPEC+ oil output deal could be tweaked”, Reuters, Nov. 9).

Hedge funds and other money managers sold 104 million barrels in the six most important petroleum futures and options contracts in the week to Nov. 3, after selling 53 million barrels the week before.

The rate of sales was the fastest since early September and before that early March, when the first wave of the epidemic was nearing its peak.


Portfolio managers were heavy sellers of Brent (-50 million barrels), NYMEX and ICE WTI (-37 million), and U.S. gasoline (-13 million), and light sellers of U.S. diesel (-2 million) and European gasoil (-2 million).

The hedge fund community’s combined position in crude has been reduced to just 345 million barrels, the 19th percentile for all weeks since the start of 2013, when positions started to be reported in the current format.

Managers have slashed their combined position in products to only 11 million barrels, the 14th percentile, according to position records from the U.S. Commodity Futures Trading Commission and ICE Futures Europe.

Bullish long positions outnumber bearish short ones by less than 2:1, the lowest ratio since March, when the first wave of the pandemic was raging and most economies in Europe and North America were going into lockdown.

In the case of U.S. gasoline, the long-short ratio has fallen to its lowest level for over three years, as traders react to signs of a slowdown in driving in North America and a renewed rise in gasoline inventories.

Portfolio investors are sending a clear signal they expect the epidemic to hit fuel consumption, encouraging refiners to restrain crude processing and pressuring OPEC+ to cut production in relation to its previous plans.

John Kemp is a Reuters market analyst. The views expressed are his own.

Related columns:

- Oil price path depends on coronavirus control (Reuters, Nov. 5)

- Coronavirus surge throws oil recovery into reverse (Reuters, Nov. 4)

- Funds sell oil on fears of virus-driven economic double dip (Reuters, Nov. 2)

- OPEC+ set for a three-month output rollover (Reuters, Oct. 27)

Editing by Jan Harvey