LONDON (Reuters) - Hedge funds and other money managers bought petroleum derivatives last week in the cautious hope the industry may have passed the worst point of the coronavirus-induced lockdowns.
Money managers purchased the equivalent of 41 million barrels in the six most important petroleum futures and options contracts in the week ending on April 28, exchange and regulatory records showed.
Purchases were down from 122 million barrels the previous week, but funds have now been buyers for five weeks running, with total purchases reaching 246 million barrels.
Repeating the pattern of previous weeks, last week’s buying was concentrated in crude (+41 million barrels) with an orientation towards U.S. light sweet crude (known as WTI) (+32 million) rather than Brent (+9 million).
There are no significant adjustments in U.S. gasoline, U.S. diesel and European gasoil, according to published position records (tmsnrt.rs/2YvN6zN).
Portfolio managers have purchased 222 million barrels of U.S. light sweet crude futures and options on NYMEX and ICE since March 3.
Funds’ bullish long positions outnumber bearish short ones in WTI by more than 5:1, up from a ratio of less than 2:1 at the start of March.
Funds anticipate the crude market will tighten significantly as lockdowns ease and consumption picks up, while producers continue to cut their output.
Petroleum consumption appears to have risen towards the end of April up from very low levels near the middle of the month.
OPEC+ countries have pledged to reduce their output from the start of May, while several large independent oil producers have announced cuts from May and deepening in June.
Bullish positions in WTI are a bet rising consumption and falling production will arrest the increase in inventories before storage space runs out.
The preference for WTI rather than Brent reflects the rapid drop in the number of rigs drilling for oil in the United States, as well as an anticipated early exit from lockdown across parts of the country.
Funds have continued to buy WTI futures and options despite, or perhaps because of, extreme movements in WTI prices because of concerns about physical delivery near Cushing.
Many fund owners appear convinced the plunge in WTI prices on April 20 was an aberration - assuming regulators will step up market surveillance to prevent a recurrence.
They seem to have concluded WTI prices are so low the balance of risks has shifted towards the upside – provided they avoid positions in contracts near to expiry.
Like other traders, fund managers have shifted positions forward on the curve, away from the next-to-expire June contract and towards the July contract and especially the September contract.
Total open interest in NYMEX WTI futures for June delivery, including funds and other traders, has fallen by 320 million barrels of 55% since the brief flirtation with negative prices on April 20.
But over the same period, open interest in WTI futures for September delivery has risen by 61 million barrels or 31%, while interest in futures for June 2021 delivery has increased by 19 million barrels or 30%.
- Oil fund’s forced sales send WTI prices plunging again (Reuters, April 30)
- U.S. oil producers race to cut output as prices fall, storage fills (Reuters, April 30)
- Hedge funds get bullish on WTI despite storage fears (Reuters, April 27)
- Extreme volatility raises questions over WTI (Reuters, April 24)
Editing by Barbara Lewis