Traders Rush To Dump European Diesel Contracts

• Open interest in Europe’s main diesel futures contract has plunged by more than one-third since the beginning of October
• Declining prices of Europe’s diesel resulted in the fastest exit of traders out of the futures contract in years

Open interest in Europe’s main diesel futures contract has plunged by more than one-third since the beginning of October as traders are getting out of their positions with the fall of diesel prices, according to exchange data quoted by Bloomberg.

The open interest of speculators and investors in European diesel has now dropped to the lowest level since 2015, the data showed.

Declining prices of Europe’s diesel resulted in the fastest exit of traders out of the futures contract in years. The lower prices have prompted many traders and investors to cut their exposure to the contract, Ole Hansen, Head of Commodity Strategy at Saxo Bank, told Bloomberg. Mostly longs have cut exposure to European diesel, but short positions were also closed, Hansen added.

The diesel exit was faster and larger than the reduction in open interest on the two main crude oil contracts, Brent and WTI.

In the week to November 30, the 15% hit to crude oil prices driven by fears of the Omicron COVID variant, cut the long position in WTI and Brent by 90,000 lots to a one-year low at 425,000 lots, Hansen said on Monday, commenting on the latest commitment of traders (COT) report from exchanges.

“The loss of momentum following the late October peak has driven an eight-week exodus out of oil contracts, culminating last week, and during this time the net length has seen a 35% or 224k lots reduction,” Hansen said.

The total eight-week reduction since October is “potentially setting the market up for a strong spec-driven recovery once the tech/fund outlook improve,” he added.

The net long—the difference between bullish and bearish bets—in Brent Crude futures fell to the lowest level since November last year, while the net long in WTI Crude was the lowest since April last year, ING strategists Warren Patterson and Wenyu Yao said on Monday.

“The flushing out of longs leaves the door open for speculators to come back into the market at these lower levels,” they noted.

By Tsvetana Paraskova for Oilprice.com

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