June 18, 2018, by John Kemp
LONDON (Reuters) – Investors continued to reduce their overall bullish position in petroleum, but profit-taking concentrated on fuels while signs of stabilization emerged in crude.
Hedge funds and other money managers cut their combined net long position in the six most important petroleum futures and options contracts by 18 million barrels in the week to June 12.
For the third week running, portfolio managers cut net long positions in gasoline (-18 million barrels), U.S. heating oil (-8 million barrels) and European gasoil (-8 million barrels).
But fund managers left their position in NYMEX and ICE WTI basically unchanged (-2 million barrels) and actually boosted their position in Brent (+18 million barrels).
The combined position in Brent and WTI rose by 16 million barrels, ending seven weeks of declines totaling 302 million barrels, according to regulatory and exchange data (tmsnrt.rs/2JNK2sE).
Profit-taking appeared to have been largely completed on the crude oil side though it still had some way to run on refined products.
Fund managers are still heavily bullish toward crude oil, with long positions outnumbering short ones by a ratio of almost 6.5:1.
But the positioning has become much less stretched since the middle of April, when the ratio hit 15:1, following heavy profit-taking.
By contrast, positioning in gasoline (12:1), heating oil (4:1) and gasoil (59:1) still appears very stretched by past standards for these contracts.
The fundamental outlook has become more complicated and uncertain in recent weeks, which appears to be holding prices about $5 per barrel below their month-ago highs.
Oil consumption growth remains strong but there are growing doubts about the sustainability of recent rapid growth rates given the 70 percent increase in prices over the past year.
OPEC and its allies seem poised to increase production to offset some of the output lost from Venezuela and prospective production losses from Iran as a result of sanctions.
However, the magnitude and timing of any production increase remains unclear and it will leave little spare capacity to deal with any further supply disruptions in 2018/19.
In the last year, the world economy has been growing at some of the fastest rates since the global financial crisis in 2008/09, helping drive a rapid rise in fuel consumption, especially for middle distillates.
But recent indicators have shown signs of slowing growth outside the United States, and the escalating tariff battle between the United States and China threatens to sap business confidence and growth.
Editing by Edmund Blair