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Fund managers ended weeks of massive selling in top-traded oil contracts last week, signaling that the oil price correction seen in August may have followed its course.
Last month, oil prices recorded their first monthly decline since March, and the the biggest such loss since October 2020, with the benchmarks of WTI and Brent falling more than 7% in August.
Concerns about the pace of global oil demand amid soaring COVID cases have depressed the oil market. Hints that the Fed is starting to gradually scale back its asset purchase program have also weighed on sentiment in recent weeks.
But in the last seven days of August, hedge funds and other portfolio managers bought the six largest oil futures and options at the second highest buy rate so far this year.
Hedge funds bought the equivalent of 60 million barrels of contracts during the week ending Aug. 31, according to stock exchange data compiled by the Reuters market analyst. John kemp.
This compares to fund managers who sold a total of 268 million barrels at the oil complex in the previous ten weeks.
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Positioning of hedge funds on the gross American benchmark index, WTI, was almost unchanged in the week to August 31, but there were significant buys in the international benchmark, Brent.
Middle distillates, including U.S. gasoline and diesel futures and options, also generated strong buying interest after Hurricane Ida disturbed most of the crude oil production in the Gulf of Mexico in the United States and forced the temporary closure of nine refineries in Louisiana.
The Commitment of Traders (COT) report for the week leading up to August 31 noted a strong purchase of petroleum and natural gas products in response to disruptions from Hurricane Ida, Ole Hansen, head of product strategy for base at Saxo Bank, commented. While WTI crude saw no change in the overall long position, Brent rose 11% to 274,000 lots, Hansen added.
The increase in the net long position in Brent Crude – the difference between bullish and bearish bets – “shouldn’t be too surprising, given the recovery we’ve seen in oil prices in recent weeks,” ING strategists Warren Patterson and Wenyu Yao. noted earlier this week.
“The increase is due to a combination of cool long and short blankets,” they added.
While the hurricane-related blackouts boosted some oil buying in late August, the end of massive selling in the oil complex over the past ten weeks indicates that the market may be ready for another wave of increased long positions.
Oil prices are not expected to rise by the end of the year amid lingering concerns about demand with the Delta COVID variant, but prices are also not expected to collapse anytime soon.
COVID concerns could delay the recovery in oil demand, which won’t leave much upside down for oil prices for the remainder of 2021, analysts told the Reuters monthly poll in late August, downgrading their forecast for this year for the first time since November. Nonetheless, Brent prices are expected to average $ 68.02 per barrel throughout the year, and WTI is expected to average $ 65.63, compared to a forecast of $ 66.13. in the July poll.
Despite the more uncertain outlook for oil with the Delta variant, some bullish signs have appeared over the past week.
Demand for road fuel in Europe bounced during the summer vacation, with gasoline demand picking up and even above pre-COVID holiday 2019 levels.
In addition, rush hour traffic in England’s largest cities back to pre-COVID levels earlier this week as schools returned from vacation and commuters returned to the office. Rush hour traffic jams in London, Birmingham, Wolverhampton, Nottingham, Leicester and Liverpool were back to levels seen in 2019, according to figures cited by The Times.
China, the world’s largest importer of crude, has seen its rebound in oil imports in August from a minimum in July. Analysts noted earlier this month, Chinese refiners were already ramping up their purchases after the latest round of Covid-19-related movement restrictions ended and were prepared to pay higher prices to secure supplies for the end of the year. year.
Oil prices may not have much room for improvement in the near term, but last month’s correction may be over.
By Tsvetana Paraskova for OilUSD
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