Kemp: Oil bears focus attention on low demand and planned production boost
Investors remain resolutely pessimistic about the future of petroleum prices, despite growing confidence that the U.S. Federal Reserve is going to cut interest rates in order to stimulate consumer spending and business investment.
Fund managers sold oil futures and option last week after the rally to cover shorts the previous week quickly lost momentum.
In the seven-day period ending August 20, hedge funds and other money managers sold equivalent to 48 million barrels of oil in six important futures and option contracts.
According to the records filed at exchanges and regulators, funds have sold in six out of seven of the past seven weeks. They've reduced their position by 346 million barrels total since July 1.
The combined position was reduced to just 178 millions barrels. This is the fourth lowest weekly record going back to 2013. It has fallen from a recent peak of 524,000,000 on July 2, (40th percentile).
Chartbook of Oil and Gas Positions
The managers of the company sold European gas oil (-20 millions barrels), NYMEX, ICE WTI and Brent (-18 million), U.S. Diesel (-4 million) and Brent (-9million), but only bought U.S. gasoline (+3million).
WTI was the only exception, as the position had been shifted to a bearish outlook.
Since the mid-cycle downturn in 2015/16, positions in middle distillates – the most sensitive to business cycles – were at their lowest since 2015.
The fact that the Federal Reserve, and other major central bankers, are confident they will lower interest rates in order to boost consumer spending and investment by businesses has not diminished concerns over a weakening growth of oil consumption.
Traders also expressed concern about the upcoming production increases by Saudi Arabia, and its OPEC allies from the start of October. Allies at the beginning of October. If implemented, this could increase inventories and further lower prices.
The potential to cover shorts and rebuild bullish positions is still very high, which could help push prices higher in the event that sentiment changes from bearish to bullish.
For the moment, however, price rises have been capped due to lingering concerns about economic prospects and fears about OPEC. Adding more oil to market.
U.S. NATURAL GASS
As a result of the hotter than normal temperatures combined with ultra-low fuel costs for power generators, portfolio investors increased their positions in U.S. Gas.
Hedge funds, other money managers and hedge funds purchased futures and options relating to the price of gasoline at Henry Hub in Louisiana that equated to 163 billion cubic foot (bcf).
The week ended August 20. Short-covering was the main reason for the purchases. Funds repurchased 164 bcf from previous short positions.
The combined position increased to 515 bcf, which is the 46th percentile of all weeks since 2010, the highest in seven weeks.
The working gas inventory has increased by just 100 bcf in the past six weeks. This is the smallest seasonal rise since 2010.
On Aug. 16, inventories were still 378 bcf (+13%) or 1.21 standard deviations above the seasonal average of the previous 10 years.
The surplus is down from +538 BCF (+20%, or +1.44 standard errors) on July 5, as generators took advantage of cheap gas in order to meet high airconditioning demands.
It is almost certain that inventories will be higher than average for the start of winter heating season on November 1.
The surplus will be completely eliminated by the end of the winter 2024/25.
Related columns
- OPEC? The moment of truth is approaching for the planned increase in output (August 22, 2024)
Oil bears become cautious as the financial market tensions ease (19 August 2024).
Oil investors reduce positions to record lows amid financial market meltdown (12 August 2024).
Oil traders ignore dwindling stock to focus on the economy (8 August 2024).
John Kemp is an analyst of the market. His views are his. Follow his commentary on X https://twitter.com/JKempEnergy (Editing by David Evans)
(source: Reuters)
