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Short Selling In Oil Returns

Money managers resumed selling the most traded petroleum futures contracts last week, reversing more than half of the previous week’s buying, as the lasting impact of the coronavirus renewed concerns about global oil demand.

According to the latest Commitment of Traders (COT) report with data through September 29, hedge funds and other portfolio managers were net sellers of the equivalent of 29 million barrels in the six most important contracts, with the WTI Crude sell-off at the equivalent of 24 million barrels, according to COT data compiled by Reuters market analyst John Kemp.

In the previous week, a short-covering run led to a mini price rally, which was snapped last week with fresh concerns about the global economic recovery.

According to Kemp’s calculations, hedge funds were net sellers of oil in five of the past six weeks, as sell-offs accelerated after the middle of August.

“Sellers returned to crude oil as the short-covering rally only managed to last for one week before growing fears about a sustained recovery again took hold. While only seeing a modest price drop of 1.4% on the week, hedge funds cut their net-longs by 6% to 402k lots. WTI crude oil saw the biggest reduction on a combination of long liquidation and fresh short selling,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday, commenting on the report.

After the period covered by the latest COT report, oil prices crashed on Thursday after data showed that OPEC raised production and exports in September compared to August. Prices further slid on Friday, after U.S. President Donald Trump said that both he and the First Lady had tested positive for Covid-19.

Oil prices rebounded on Monday by more than 4 percent at 10:00 a.m. EDT, with Brent Crude back above $40 a barrel, following news from doctors that President Trump’s health is improving.

“The current range bound trading behaviour highlights a market that remains torn between short-term weakness against the expectations for a recovery, the timing of which, however, continues to be delayed,” John Hardy, Head of FX Strategy at Saxo Bank, said on Monday.

By Tsvetana Paraskova for Oilprice.com

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