LONDON (Reuters) - Hedge funds continued to switch their focus from crude oil to refined fuels last week – betting refinery margins are too low and will have to rise even as signals about the benchmark oil prices remain conflicting.
Hedge funds and other money managers purchased the equivalent of 12 million barrels in the six most important petroleum futures and options contracts in the week to Aug. 18.
But purchases were concentrated in petroleum products (+20 million barrels) while there were net sales in crude oil (-8 million), continuing a trend evident for the last two months.
Funds were net buyers last week of U.S. gasoline (+11 million barrels), U.S. diesel (+5 million) and European gasoil (+3 million) while selling Brent (-1 million) and NYMEX and ICE WTI (-7 million).
Since June 9, portfolio managers have purchased a total of 80 million barrels in the three major fuels contracts while selling 32 million barrels of crude contracts.
The combined net position in fuels has risen to the 57th percentile, up from the 23rd percentile, for all trading days since 2013, while the position in crude has fallen to the 61st percentile, down from the 68th.
Earlier bullishness about crude prices has dissipated as the coronavirus epidemic has intensified again and brought a renewed round of lockdowns and economic disruption.
Benchmark crude prices have been flat in recent weeks and calendar spreads have actually softened, indicating traders see plenty of crude availability in the next few months.
In response, fund managers have shifted their attention to fuels, where refinery margins close to multi-year lows are prompting refiners to restrict crude processing and fuel production.
In the absence of strong signals about the direction of petroleum prices, fuels offer the most attractive relative value and are likely to perform more strongly than crude.
John Kemp is a Reuters market analyst. The views expressed are his own.
- Hedge funds focus on relative value as oil prices stall (Reuters, Aug. 17)
- Oil market sentiment softens as pandemic lingers (Reuters, Aug. 14)
- Oil market stalls as absence of signals compounds summer slowdown (Reuters, Aug. 11)
- Hedge fund buying switches from crude to fuels (Reuters, July 27)
Editing by David Evans
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