Column: Hedge funds buy oil as price risks rise

LONDON (Reuters) – Hedge funds bought oil last week at the fastest rate for almost a year, while escalating tensions in the Middle East and hope for a reduction US interest rates outweighed concerns about declining global growth.

Hedge funds and other fund managers bought the equivalent of 84 million barrels in the six largest oil futures and options in the week to July 16, the largest weekly increase since August 2018.

The funds last week bought Brent (+36 million barrels), NYMEX and ICE West Texas Intermediate (+29 million), US gasoline (+6 million), heating oil (+2 million) and European diesel (+ 11%). million barrels).

The portfolio managers bought 125 million barrels of crude oil and fuels in the last four weeks, after selling 389 million barrels in the previous eight weeks, according to stock and regulatory data.

The funds remain cautious on the price outlook, with net long positions rising to only 647 million barrels, down from recent highs of 911 million euros at the end of April and 1.09 billion barrels. Euros in September 2018.

And the ratio of long positions on hedge funds, perhaps the most useful measure of the rise, was still only 4.5: 1 last week, compared with 8.1: 1 in April and 12 , 4: 1 in September.

But in late June and early July saw a significant and sustained reversal of the previous trend of sale to purchase (tmsnrt.rs/32LflKj).

For the moment, most fund managers seem to have concluded that the balance of risks has risen significantly.

From a positional point of view, short positions remain high, allowing for better earnings coverage, while long positions are low, leaving ample room for funds to increase their holdings.

From a fundamental point of view, the growing stalemate between Iran and the United States and its allies in the Middle East increases the threat of further disruptions in oil supplies.

At the same time, Federal Reserve officials have hinted that they would cut interest rates at the end of the month in order to maintain the growth of the US economy.

The anticipated reduction in US rates is part of the global monetary easing cycle led by major central banks in response to signs of slowing growth.

The rate cuts should reduce the value of the US dollar against the currencies of the major oil-importing countries such as India and China, which would support local consumption and push up prices in dollars.

More generally, falling interest rates should help boost global economic growth and oil consumption over the next 12 to 18 months, provided the global economy avoids the recession.

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– Inflated oil stocks highlight low oil consumption (Reuters, July 18, 2009)

– Oil and stocks prepare to party like in 1999 (Reuters, March 19)