Column: Funds sell oil at fastest rate for 15 weeks as economic outlook worsens

Oil and gas tanks are seen at an oil warehouse at a port in Zhuhai, China October 22, 2018. REUTERS/Aly Song/File Photo

LONDON, June 27 (Reuters) - Investors sold petroleum last week at the fastest rate since just after Russia’s invasion of Ukraine, as the deteriorating economic outlook trumped fears about the impact of sanctions on oil supplies.

Hedge funds and other money managers sold the equivalent of 71 million barrels in the six most important petroleum futures and options contracts in the week to June 21.

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The rate of selling was the fastest since the week ending March 8, shortly after the invasion, based on position records from ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Sales over the last two weeks have totalled 82 million barrels, largely reversing purchases of 99 million over the previous four weeks, as traders’ focus has shifted from sanctions to the gathering economic downturn.

In the most recent week, sales were led by the liquidation of existing bullish long positions rather than the creation of new bearish short ones, and by crude oil rather than refined products.

Selling was concentrated in NYMEX and ICE WTI (-35 million barrels) and Brent (-30 million) with small sales in U.S. diesel (-4 million) and U.S. gasoline (-3 million) and insignificant purchases of European gas oil (+1 million).

Existing bullish long positions were cut by 65 million barrels while new bearish shorts were initiated amounting to just 6 million, implying profit-taking among formerly bullish fund managers.

The net position across all six contracts was cut to just 564 million barrels (which is in only the 41st percentile for all weeks since 2013) down from 647 million barrels (56th percentile) two weeks ago.

The ratio of long to short positions fell to 5.68:1 (74th percentile) from 6.68:1 (84th percentile) a fortnight earlier.

Policymakers from North America and Europe are still exploring ways to step up sanctions on Russia’s crude and diesel exports, which is supporting positions and oil prices.

But the potential impact is more than offset by signs economies on both sides of the North Atlantic are starting to weaken, which is likely to weaken consumption of both crude and middle distillates.

Related columns:

- Diesel demand set to drop as economies enter recession (Reuters, June 23) read more

- Hedge fund oil bulls checked as interest rates rise (Reuters, June 20) read more

- Surging oil prices show business cycle slowdown is inevitable (Reuters, June 14) read more

- Brent bulls get a boost from EU sanctions on Russia (Reuters, June 13) read more

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

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Editing by Jan Harvey

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John Kemp is a senior market analyst specializing in oil and energy systems. Before joining Reuters in 2008, he was a trading analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivative markets, risk management, policy and transitions.