LONDON, May 2 (Reuters) – Oil prices have fallen back as the short-covering rally sparked by OPEC+’s surprise cut in production target has ended, giving way to a wave of profit-taking and renewed short selling prompted by economic concerns.
Hedge funds and other money managers sold in the seven days ended March 25.
The sale was the first since the US regional banking crisis erupted in March and came after the funds bought a total of 245 million barrels over the previous four weeks.
Last week sales were across the board including Brent (-35m barrels), NYMEX and ICE WTI (-19m barrels), European Gasoil (-14m), US Gasoline (-13m) and US Diesel (- 6 million).
The combined position fell from 534 million barrels (38th percentile) seven days earlier to 447 million barrels (23rd percentile for all weeks since 2013).
The ratio of bullish longs to bearish shorts fell to 3.52:1 (39th percentile) from 5.00:1 (64th percentile) a week earlier.
Chartbook: oil and gas positions
Heightened fears of a slowing economic cycle hitting oil consumption overwhelmed any remaining bullish sentiment attributed to the OPEC+ production cut announced on April 2nd.
Investment managers are particularly pessimistic about the prospects for middle distillates, such as diesel and gas oil, which are most dependent on the industrial cycle.
The funds held a net position in middle distillates of just 7 million barrels (21st percentile) and bullish longs were down on the 25th.
Persistent inflation, rising corporate layoffs and heightened caution about corporate and household spending signal a further slowdown in the business cycle over the coming months.
US NATURAL GAS
Investors also tempered their recent optimism on US gas prices as inventories continued to rise faster than normal for the time of year despite very low prices.
The funds sold the equivalent of 99 billion cubic feet in the seven days ended April 25, after buying a total of 1,287 billion cubic feet in the previous eight weeks.
The position slipped to 12 billion cubic feet net short (31st percentile for all weeks since 2006) from 87 billion cubic feet net long (34th percentile) a week earlier.
The ratio of bullish longs to bearish shorts fell to 1.00:1 (31st percentile) from 1.03:1 (34th percentile) the previous week.
Inventories remain much higher than normal despite extremely low prices encouraging consumption and the reopening of Freeport’s LNG export terminal.
Inventories on April 21 were 280 billion cubic feet (+16% or +0.61 standard deviations) above the seasonal average of the previous decade, after a deficit of 263 billion cubic feet (-8% or -0.98 standard deviations) on April 21 21. 1.
Inventories have continued to rise even though inflation-adjusted prices are in the 3rd percentile for every day since 1990, a signal that there is a sustained excess production that will necessitate a further slowdown in drilling.
Related columns:
– The oil market has coped with the surprise production cut by OPEC⁺ (April 26, 2023)
– Oil purchases slow amid renewed economic concerns (April 24, 2023)
– Oil Prices Flat as Short Covering Rally Concludes (April 17, 2023)
John Kemp is a market analyst at Reuters. The views expressed are his own
Editing by Mark Potter
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John Kemp
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