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Hedge funds and other portfolio managers ended the last week of 2023 with the most new bearish positions in futures and options contracts since March and the second-largest jump in weekly short additions since 2017.
The latest Commitment of Traders reports show that speculators reduced their net long position – the difference between bullish and bearish bets – in ICE Brent over week to January 2 by 29,532 lots to 169,843 lots as of last Tuesday.
“This move was predominantly driven by fresh shorts entering the market, with the gross short increasing by 28,578 lots over the week,” ING strategists Warren Patterson and Ewa Manthey wrote in a note on Monday.
The net long in NYMEX WTI was also reduced, by 35,869 lots over the period to 89,330 lots as of January 2. This reduction was also predominantly driven by fresh shorts entering the market, ING’s analysts added.
Last week, the Bloomberg Commodity index which tracks 24 major futures markets, fell by 1.8% on the week, driven by losses across all sectors, but most notably energy and grains. The biggest losses per commodity type were seen in crude oil and palladium, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, commenting on the traders’ positioning.
Funds sold 65,000 lots of crude oil with the combined net long in Brent and WTI falling by 20% to 259,000 lots. The slashed net long was primarily driven by fresh short selling during a week in which prices slumped by more than 6%, Hansen added.
At the start of this week, oil prices were down by 3% early on Monday after Saudi Arabia signaled softer demand by cutting the February prices for its oil to all regions.
Additional downward pressure on oil could come this week from the annual rebalancing of the two biggest commodity indexes – the Bloomberg Commodity Index and the S&P GSCI – which is expected to prompt crude futures selling by funds tracking the indexes, according to Bloomberg.
By Tsvetana Paraskova for Oilprice.com
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.