Funds cut diesel positions amid fears of economic slowdown: Kemp


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LONDON — Investors sold petroleum last week with the fastest sales concentrated in middle distillates as the economic outlook on both sides of the Atlantic deteriorated.

Hedge funds and other money managers sold the equivalent of 40 million barrels in the six most important petroleum futures and options contracts in the week to Sept. 6.

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There were sales of Brent (-18 million), NYMEX and ICE WTI (-3 million) and U.S. gasoline (-3 million) according to data from ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

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As a result the net position in Brent and WTI was reduced to 319 million (11th percentile for all weeks since 2013) down from 513 million barrels (50th percentile) in early June.

Long positions in crude outnumbered shorts by a ratio of 3.5:1 (32nd percentile) down from 6.7:1 (82nd percentile) as funds become more focused on downside risks to consumption and prices.

But the heaviest proportional sales were in U.S. diesel (-8 million barrels) and European gas oil (-8 million barrels) with both experiencing the fastest sales since March 8, shortly after Russia invaded Ukraine.

The sell off largely reversed purchases across the two middle distillate contracts of 24 million barrels over the previous three weeks (https://tmsnrt.rs/3eF3oAo).

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However, the prospective economic deterioration has taken much of the former heat out of oil prices, especially in the mid-distillates, which are the most sensitive to the business cycle.

Worsening outlooks for manufacturing across North America, Europe and Asia, as well as the persistent cycle of lockdowns in China, are now more than offsetting concerns about the low level of distillate stocks.

Related columns:

– U.S. diesel stocks critically low after failing to recover over summer (Reuters, Sept. 9)

– European gas oil futures anticipate recession (Reuters, Aug. 8)

– U.S. diesel shortage shows economy hitting capacity limit (Reuters, Aug. 4)

– Hedge funds bullish on U.S. diesel as inventories dwindle (Reuters, Aug. 1)

– Low U.S. oil inventories imply deeper economic slowdown will be needed (Reuters, July 28)

John Kemp is a Reuters market analyst. The views expressed are his own (Editing by Kirsten Donovan)



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