For the first time in eight weeks, hedge funds and other money managers boosted last week their net long position in Brent Crude, increasing their bets that Brent oil prices will rise and reducing wagers on lower prices.
The first reverse in the net long position in Brent in two months, however, is more a sign that portfolio managers may have completed the profit-taking from the past few weeks and may have felt that they had oversold crude oil, rather than a firm wager that oil prices will rise just ahead of the much-talked-about OPEC meeting later this week, according to analysts.
According to data by ICE Futures Europe compiled by Bloomberg, hedge funds boosted their net long position in Brent by 4.1 percent for the week ended on June 12—the most recent weekly data from the exchange. Data for this week’s wagers will be available after the OPEC meeting, so it won’t be until next week that we see how portfolio managers traded this week’s OPEC chatter, comments, and official statements.
For the week through June 12, hedge fund managers boosted long positions in Brent by 2.9 percent and trimmed short positions by 4 percent.
“Clearly, the increase in Brent positions didn’t come at the right time,” Kyle Cooper, a consultant at ION Energy, told Bloomberg. “People saw the big drop in prices and thought, wait a second, we’re oversold now and due for a bounce. If Saudi Arabia and OPEC don’t just open up their spigots, the market still looks kind of tight.” Related: Permian Discount Could Rise To $20 Per Barrel
Hedge funds flipped bets on Brent, and left wagers on WTI Crude almost unchanged week on week through June 12, but cut their net long position in other petroleum contracts such as gasoline, U.S. heating oil, and European gasoil, according to regulatory and exchange data compiled by Reuters market analyst John Kemp. In the week to June 12, money managers raised their combined Brent Crude and WTI Crude net long position by 16 million barrels, following seven weeks of reductions that had trimmed the net long position in crude oil by a total of 302 million barrels.
Despite the cut in the net long position over the past two months, portfolio managers are still very bullish on crude oil as a whole—longs outnumber shorts by a ratio of almost 6.5:1. But the bets on crude oil are now less lopsided than they were in the middle of April, when the long to short positions ratio was 14:1, higher than when it was when hedge funds held a record net long position in oil back in January.
Following the recent profit-taking and sell-off in Brent and WTI, this week’s attention is all focused on the OPEC meeting in Vienna at which the cartel and its Russia-led allies will discuss boosting production in response to supply disruptions from Venezuela and potential losses from Iran. Related: The Fed Is Driving Down Oil Prices
Saudi Arabia’s Energy Minister Khalid al-Falih said last week that a deal to gradually ease the cuts was “inevitable”, but the countries set for declines in oil supply and subject to U.S. sanctions—Iran and Venezuela—vow to veto—along with support from Iraq—any Saudi proposal to lift production.
This is setting the stage for a tense meeting, and the oil market and participants are guesstimating a wide range of outcomes and possible production increases—from a disastrous meeting with no unanimous decision to a production boost ranging from just 300,000 bpd to as much as 1.5 million bpd.
The hedge funds’ most recent positioning in Brent and WTI may be the result of easing of the heavy profit-taking in the previous weeks, but their moves from here on out are likely to be more influenced by what OPEC does next.
By Tsvetana Paraskova for Oilprice.com
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