By John Kemp
LONDON (Reuters) – Hedge fund managers continued to liquidate former bullish positions in oil last week and for the first time in more than a year clear signs of fresh short-selling emerged.
Rising oil production from Saudi Arabia, the United Arab Emirates, Kuwait and Russia has eased concerns about the availability of supplies once U.S. sanctions on Iran are re-imposed in November.
At the same time, intensifying fears about a possible global economic slowdown have hit oil prices and equity markets hard over the last three weeks.
The bullish wave of hedge fund position-building in oil and refined products that started in July 2017 and crested in January 2018 has now largely broken.
Portfolio managers’ combined positions in crude and refined products climbed from a low of 310 million barrels at the end of June 2017 to almost 1.5 billion barrels in late January but have since fallen back to just over half that level.
Fund managers have not yet turned bearish on the outlook for oil prices; U.S. sanctions on Iran are deterring all but the most aggressive sellers.
But the hedge fund community is no longer significantly bullish, with most managers opting to realize their profits after a year-long rally and await further developments.
Hedge funds and other money managers cut their combined net long position in the six most important petroleum futures and options contracts by 111 million barrels in the week to Oct. 23.
Portfolio managers have cut their combined net long position by the equivalent of 298 million barrels over the last four weeks to just 801 million barrels, the lowest level for more than a year.
Bullish long positions were cut to just 965 million barrels, the lowest level for 65 weeks, according to position records published by regulators and exchanges.
The ratio of long to short positions sank to less than 6:1, down from a recent peak of more than 12:1 at the end of September (tmsnrt.rs/2CMzx3Y).
Hedge funds cut net length in Brent (-48 million barrels), NYMEX and ICE WTI (-43 million), U.S. gasoline (-11 million), U.S. heating oil (-7 million) and European gasoil (-2 million).
Once again, the sell-off was driven mostly by the liquidation of former bullish long positions, which declined by a combined 81 million barrels.
But clear evidence of fresh short selling emerged, with short positions up by 30 million barrels to 164 million barrels, the highest level since the end of June.
In the NYMEX WTI contract, fund managers have boosted outright short positions by a total of 42 million barrels since the end of August, initiating the first new cycle of short-selling for almost a year.
(John Kemp is a Reuters market analyst. The views expressed are his own)
Editing by Adrian Croft