By John Kemp LONDON, Nov 23 (Reuters) - Hedge funds began t
By John Kemp
LONDON, Nov 23 (Reuters) – Hedge funds began to develop into extra bullish on the outlook for oil final week amid rising hopes a profitable coronavirus vaccination programme will allow the early resumption of enterprise exercise and air journey.
Hedge funds and different cash managers bought the equal of 69 million barrels within the six most essential petroleum futures and choices contracts within the week ending on Nov. 17, in line with alternate place information.
Portfolio managers have now bought a complete of 182 million barrels within the two most up-to-date weeks, taking their complete place within the six contracts to 539 million, the best it has been because the begin of September.
Final week’s purchases principally consisted of the creation of latest bullish lengthy positions, in distinction to the week earlier than, when shopping for was pushed by the necessity to shut out outdated bearish brief positions.
Shopping for was centered on Brent (+51 million barrels) however there have been purchases throughout the board together with NYMEX and ICE WTI (+three million), U.S. gasoline (+7 million), U.S. diesel (+1 million) and European gasoil (+6 million).
Fund managers have develop into a lot much less bearish and extra bullish in direction of crude and gasoline costs, as hopes for a vaccine-driven rebound in oil consumption rise, however the shift began from a really low and pessimistic base.
Even after the latest bout of shopping for, the hedge fund group’s web place in crude was nonetheless solely within the 44th percentile for all weeks because the begin of 2013, whereas the web place in merchandise was within the 48th percentile.
Crude positions had risen solely again to the place they had been 4 weeks beforehand and had been nonetheless nicely beneath the place they stood on the finish of the second quarter and the beginning of the third (https://tmsnrt.rs/371Dtv7).
That implies there may be nonetheless a whole lot of scope for fund managers to extend their bullish positioning if information about vaccine trials and deployment stays encouraging.
Brent spot costs and calendar spreads have continued to strengthen in latest days, suggesting extra shopping for has most likely entered the market because the positions had been reported on the finish of final Tuesday.
Fund shopping for will speed up and presumably amplify the rise in costs because the market anticipates an enchancment within the consumption outlook in 2021.
The principle hazard is that merchants’ are over-estimating the pace at which profitable vaccine trials will be become community-wide immunisations and a resumption of regular enterprise and worldwide aviation.
For now the steadiness of value threat might be nonetheless tilted to the upside, with potential for extra position-building within the brief time period.
However costs will develop into more and more weak to an interim correction if market individuals develop into much less optimistic in regards to the timeline and its influence on oil demand.
Associated columns:
– Vaccine trials mood hedge funds’ oil pessimism (Reuters, Nov. 17)
– Profitable vaccine would enhance oil consumption, however not for 6-12 months (Reuters, Nov. 10)
– Hedge funds dump oil, immediate OPEC to sign “tweak” (Reuters, Nov. 9)
– Oil value path is determined by coronavirus management (Reuters, Nov. 5)
(Enhancing by Kirsten Donovan)
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