January 22, 2019 / 10:44 AM / 8 months ago

Column: Hedge funds buy oil amid greater optimism on economy

LONDON (Reuters) - Hedge funds have started to accumulate bullish positions in crude oil and diesel once more, amid rising optimism about the outlook for the global economy in 2019.

A structure of the Brazil's Petrobras P-66 oil rig in the offshore Santos basin is seen in Rio de Janeiro, Brazil September 5, 2018. REUTERS/Pilar Olivares

Hedge funds and other money managers increased their net long position in Brent crude futures and options by 15 million barrels to 173 million barrels in the week to Jan. 15.

Portfolio managers have raised their net long position in Brent in five of the last six weeks, by a combined 36 million barrels since Dec. 4, according to exchange data.

Funds also boosted their net long position in European gasoil by 6 million barrels to 11 million barrels, the second small weekly increase in a row, after twelve large consecutive declines (tmsnrt.rs/2S2rQP2).

In both cases, most of the new buying came from the closure of existing short positions rather than opening fresh long ones.

It follows the largest sell-off ever recorded in crude and gasoil during the fourth quarter and suggests many fund managers sense prices have found a floor, at least temporarily.

The new wave of buying in crude and gasoil is still small and net positions are still a fraction of the 500 million barrels of Brent and 126 million barrels of gasoil held in September.

But it comes amid increasing optimism among investors about a future trade deal between the United States and China that could help avert a feared recession.

The same optimism that has boosted the U.S. S&P 500 share index by 14 percent since Dec. 26 and South Korea’s trade-exposed KOSPI-100 index by 8 percent since Jan. 4 is helping reverse some of the recent losses in oil prices.

Related columns:

- Fund managers neutral on crude and fuel outlook (Reuters, Jan. 14)

- Hedge funds dump crude and diesel as economic outlook darkens (Reuters, Jan. 8)

- Dollar cycle may be about to turn, supporting oil prices (Reuters, Jan. 4)

Editing by Edmund Blair

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