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Photographer: Andrey Rudakov / Bloomberg
Photographer: Andrey Rudakov / Bloomberg
Investors and oil companies are rushing back to the crude market.
Total holdings of Brent and WTI futures have climbed to their highest level since May. It comes as banks from Goldman Sachs Group Inc. to JPMorgan Chase & Co. see the market outlook improving and some large hedge funds talk about commodities entering a price super-cycle.
The surge in open interest marks a turnaround after oil fell below zero, a rout that caused global crude production to collapse along with falling consumption. Trade collapsed last year as U.S. crude production plunged and consumers such as airlines pulled out of the blanket space. The nadir was in November. Since then, things have picked up, with a strong rebound this year.
“People are reconsidering the investment case for the commodities asset class,” said Harry Tchilinguirian, oil strategist at BNP Paribas. “Open interest in oil rises again as macro-oriented funds examine the case for commodities.”
JPMorgan is among banks saying it favors commodities as a hedge against inflationary pressures, while Bank of America Corp. believes that stimulus pressures are already pushing up oil prices.
Recovery
The rally also spurred a rise in producer coverage, with WTI for 2022 approaching $ 50 a barrel. Brent for the same period is already above this marker. Much of the shale oil production is profitable at current levels, according to the executive director of the International Energy Agency, Fatih Birol.
Along with the recovery in activity, there has also been a rebound in the number of bullish market players. There were 163 fund managers with long positions in Brent and WTI last week, the most since February. This is up from 94 in March.
This change is good news for CME Group Inc. and the Intercontinental Exchange Inc., which own the largest oil exchanges in the world.
“Our WTI markets continue to reflect broad participation across the globe as customers manage their global price risk,” said Peter Keavey, general manager of energy products at CME Group. “WTI remains the market’s choice for managing exposure to crude oil.”
Crude has had more reason to be supported so far this year. A huge clue The rebalancing is expected to see around $ 9 billion pouring into the market last week, as prices hit 10-month highs. In addition, the weaker dollar sparks further discussions on a super-cycle of raw materials. JPMorgan and Goldman Sachs have recommended increasing their exposure to the sector in recent days.
There is “a lot of producer coverage of course and some of that will go in one form or another on the stock market,” said Paul Horsnell, head of commodities research at Standard Chartered Plc.
In addition, the short positions of swap dealers – a sign that the banks were managing the hedges they sold to producers – reached their level. highest level since April last week.
And with forecasts of a global economic recovery this year, there is potentially more oil coming in. The open interest value of Brent and WTI is still down about a third from a high of $ 408 billion in 2018, but the The World Bank expects the global economy to grow 4% this year and 7.9% increase in China, the world’s largest importer of oil.
“Brent is the global benchmark for crude oil prices, so as forecasts for global economic activity improve, we are seeing strong demand for trading and risk management through the Brent futures market. Said Jeff Barbuto, Global Head of Oil Markets at ICE.
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