Tag: hedge funds

Hedge funds sidelined by cross-cutting uncertainties on oil

2 May 2022

Portfolio investors made few changes to petroleum positions last week as the outlook remained finely poised between offsetting uncertainties about a slowing economy, coronavirus lockdowns and Russia sanctions.

Hedge funds and other money managers trimmed their combined position in the six most important futures and options contracts by the equivalent of 2 million barrels over the week ending on April 26.

There were small reductions in both bullish long positions (-17 million barrels) and bearish short ones (-15 million) as funds reduced their risk exposure .

Purchases of NYMEX and ICE WTI (+13 million barrels) and U.S. diesel (+1 million barrels) were offset by sales of Brent (-14 million) and U.S. gasoline (-2 million) with no change in European gas oil.

As a result, the combined net position across all six contracts fell to just 550 million barrels (38th percentile since 2013) from a recent high of 761 million (70th percentile) in the middle of January.

Cross-cutting impacts from sanctions on Russia’s oil exports, China’s coronavirus lockdowns and a slowing global economy have made the future direction of prices less clear.

At the same time, elevated volatility has made it more expensive to maintain existing positions or initiate new ones.

Reflecting increased uncertainty and cost of positions, the total number of open futures contracts held by money managers and all other categories of traders fell for the ninth time in the last ten weeks.

Last week’s reduction of open interest by 13 million barrels takes the total reduction since the middle of February to 1,141 million barrels.

cftc-and-ice-commitments-of-traders-weekly-summaryDownload

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Hedge funds position for yield curve inversion

RECESSION signals are intensifying with the two-to-ten year segment of the U.S. Treasury yield curve within 12 basis points of inverting and in the 88th percentile for all months since 1990. The U.S. economy has been in a formal end-of-cycle recession as defined by the National Bureau for Economic Research for just over 9% of the time since 1990:

U.S. OIL producers have added drilling rigs at a rate of just over 4 per week since the start of the year, essentially the same rate since August 2020, but slower than during the previous recoveries after price slumps in 2015/16 and 2008/09:

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