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(John Kemp is a Reuters Market Analyst, opinions are his own)
By John Kemp
LONDON, Feb. 18 (Reuters) – Investors bought futures and options on crude oil at the fastest rate in nearly six months in the week to 12 February.
Hedge fund managers are increasingly optimistic about the outlook for oil prices, with Saudi Arabia drastically reducing production, sanctions on Venezuela and Iran, and the United States and China. approaching a trade agreement.
Hedge funds and other money managers have been net buyers of 32 million barrels of futures and options on Brent in the week to February 22, according to ICE Futures Europe's position statements. .
The portfolio managers have been net buyers of Brent over the past nine weeks, increasing their net position by 130 million barrels since December 4. Last week, the largest purchases were recorded.
Earlier in the current cycle, most of the creation of positions had been achieved by closing previous short bearish positions, but the balance has shifted over the most recent week, with most accumulations resulting from the initiation of new long bullish positions.
Fund managers opened 29 million barrels of new long positions while reducing short positions by 3 million barrels in the week to 12 February.
The funds now hold a net long position of 266 million barrels in Brent, up from 136 million at the beginning of December, while remaining well below the close to 500 million barrels at the end of September.
A similar shift in position is evident in European diesel, where the funds were net buyers of 11 million barrels of futures and options in the week to 12 February.
The portfolio managers have been net purchasers of diesel for six consecutive weeks, with purchases totaling 38 million barrels.
Like Brent, last week's gas contract purchases were the largest so far and the balance moved from overdraft to new long positions.
Saudi Arabia has eased concerns over excess supply by acting as an alternative producer, rapidly reducing production despite little respect from other members of the Organization of Petroleum Exporting Countries and its allies , a group known as OPEC +.
United States sanctions on Iran and Venezuela also removed significant quantities of oil from the market, particularly heavy heavy crude oils, which resulted in a sudden tightening of oil prices. # 39; offer.
At the same time, traders have become more optimistic. Trade negotiations between the United States and China will avoid the imposition of new tariffs on March 2 and will avoid a global recession boosting demand.
If growth in oil consumption does not accelerate, avoid tariffs and a recession would not slow down further, which would alleviate fears of an oversupplied oil market in 2019.
Record hedge fund sales forced OPEC + to change strategy sharply in the fourth quarter, as the outlook for the global economy and oil consumption deteriorated.
But now that the group of producers has changed course, the purchase of hedge funds has accelerated the recent rise in the price of Brent, providing Saudi Arabia with a quick advantage in terms of reducing production and validating the strategy of OPEC +.
And as hedge fund positions tend to be concentrated on near maturity contracts, which offer the best liquidity, purchases have also accelerated the move from contango to backwardation spreads.
Provided that the US and China can avoid a new round of tariffs and the global economy avoids the recession, the balance of price risks should remain on the upside.
Related columns:
– Oil prices likely to rise (Reuters, February 15)
– Venezuelan sanctions put crude oil on the crude oil market (Reuters, February 12)
– Hedge funds return to oil as OPEC eliminates downside risk (Reuters, January 28)
– Hedge funds buy oil in a climate of economic optimism (Reuters, January 21) (Edited by Edmund Blair)
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