Hedge Funds Are Sold On $100 Oil

Money managers are placing the most bullish wagers in more than a year,  with many betting that oil prices will soon pass $100 a barrel following a powerful rally triggered by production and export cuts by Saudi Arabia and Russia. 

The latest Commitments of Traders (COT) report by the Commodity Futures Trading Commission (CFTC) revealed that combined net long positions in Brent and West Texas Intermediate by hedge funds jumped by 137,000 contracts, or 35 per cent, to an 18-month high of 527,000 contracts in the first two weeks to September 12. The figures, good for ~5 days worth of global demand, are a widely followed proxy of hedge fund sentiment.

"A considerable amount of dry powder had been sitting on the sidelines, meaning the recent strong tape could set off a further chase and catch-up in positioning. This oil market has evolved into as much of a momentum-based market as it is a fundamentally based one," Michael Tran, a global energy strategist at RBC Capital Markets, has told Bloomberg.

Another notable trend: oil producers are selling contracts for later delivery to lock in higher prices for future production. The spread between the December 2023 and December 2024 contracts has widened to $10 per barrel, with the deepening backwardation and indication of growing confidence that high oil prices are here to stay.

But not everybody has become an ultrabull. Doug King, chief investment officer at RCMA Asset Management, has told the Financial Times he is not convinced oil would go that much higher because market tightness was being driven primarily by OPEC+ cuts rather than strong demand.

"The move higher is not massively structural, I think it's more contrived. We're approaching the upper end of this move in my view, as if we get above $100 a barrel I suspect we'll see more barrels leak onto the market," King has said.

Other less bullish analysts are Dutch multinational banking and financial services company ING Bank and Standard Chartered, both of whom see oil prices briefly crossing above $100 per barrel in the fourth quarter before falling back to low 90s.

By Alex Kimani for Oilprice.com

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