Column: Bargain-hunting hedge funds bolster oil positions: Kemp

An aerial view shows tugboats helping an oil tanker to dock at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022. cnsphoto via REUTERS

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LONDON, July 25 (Reuters) – Portfolio investors bought oil futures and options for the second straight week as at least some fund managers concluded that expectations of a recession and a recent massive sale were exaggerated.

Hedge funds and other money managers bought the equivalent of 31 million barrels in the six largest oil futures and options contracts in the week ending July 19 (https://tmsnrt.rs/3J1l5p1).

Buys were heavily skewed towards initiating new bullish long positions (+26 million barrels) rather than liquidating existing bearish short positions (-5 million).

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It focused on crude rather than commodities with purchases of both Brent (+15m barrels) and NYMEX and ICE WTI (+15m).

There were only minor adjustments for US gasoline (+2 million barrels), US diesel (+1 million) and European diesel (-3 million).

Even after the purchase, the net position on all six contracts is relatively small at just 485 million barrels (28th percentile for all weeks since 2013). Crude positions are particularly weak at just 381 million barrels (21st percentile).

Relatively bearish positioning, combined with the price decline that set in after mid-June, improved the risk/reward ratio and encouraged at least some investors to re-enter the market to take advantage of any rebound.

Associated columns:

– Oil positions stable after end of hedge fund sell-offs (Reuters, July 18) read more

– Oil undervalued by hedge funds on heightened recession risk (Reuters, July 11) read more

– Oil bulls pull back as economic outlook darkens (Reuters, July 4) read more

– Funds sell oil at fastest pace in 15 weeks as economic outlook deteriorates (Reuters, June 27) read more

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

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Editing by Barbara Lewis

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.