Column: OPEC+ cuts attract funds to the oil market

LONDON, Oct 17 (Reuters) – Portfolio investors continued to buy crude oil futures and options heavily for a second week after OPEC+ cut its output target more than expected.

Hedge funds and other money managers bought the equivalent of 47 million barrels of oil-related futures and options in the week to October 11.

The purchases came after OPEC+ announced on October 5 that the group would cut its combined production target by 2 million barrels per day from November.

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They followed purchases of 62 million barrels the previous week as OPEC+ officials began advising traders of the likelihood of a deep cut.

card book: Trader CFTC and ICE Commitments

The combined position on all six contracts increased by 109 million barrels in the past two weeks after being reduced by a total of 237 million barrels in the 16 weeks since mid-June.

In the most recent week, most buying focused on crude (+36m barrels) with heavy buying on NYMEX and ICE WTI (+20m) and Brent (+16m). ).

There were also strong middle distillate purchases (+14m barrels), including European diesel (+7m) and US diesel (+6m), but US gasoline sales (-3m) .


Stemming the outflow of money from hedge funds and persuading some managers to invest again was likely one of the reasons OPEC+ aggressively cut production targets.

OPEC+ succeeded in this goal, but at the cost of heavy criticism from the United States of Saudi Arabia, the group’s de facto leader and key decision-maker.

Total hedge fund positions in crude reached 396 million barrels (25th percentile for all weeks since 2013), from a low of 314 million (10th percentile) on September 27.

The funds are also increasingly bullish on middle distillates as concerns over low inventories and a shortage of refining capacity outweigh fears of a recession-induced slowdown in demand.

The total position in middle distillates rose to 70 million barrels (58th percentile) from a low of 45 million (40th percentile) two weeks ago.

Bullish longs now outnumber bearish shorts in distillates by a ratio of 4.90:1 (76th percentile) to 2.35:1 (45th percentile).

Distillates are the most cycle-sensitive part of the petroleum market, as most diesel and gas oil are used in manufacturing, freight transportation, agriculture, mining, and oil and gas extraction. gas.

But fund managers have become more optimistic about the outlook for distillate prices even as the economic outlook has deteriorated.

Global distillate stocks are at multi-decade lows and there is not enough refining capacity to replenish them unless and until a recession results in a significant drop in consumption.

Investors seem to be betting that distillate shortages will worsen in the near term before a possible recession causes them to ease later in 2023.

Associated columns:

— Diesel’s grim message for the global economy (Reuters, October 14)

– OPEC+ cut brings speculative funds back to oil market (Reuters, October 10)

– Oil investors poised for recession (Reuters, October 3)

– Hedge funds dump distillates as recession risks mount (Reuters, September 26)

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

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Editing by David Evans

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.

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