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Column: Hedge funds more bullish on crude as sanctions loom


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Dust blows around a crude oil pump jack and flare burning excess gas at a drill pad in the Permian Basin in Loving County

REUTERS/Angus Mordant

LONDON, May 23 (Reuters) – Investors grew significantly more bullish on petroleum prices last week in response to an increasing likelihood that EU sanctions on Russia’s exports that will intensify global oil shortages.

Hedge funds and other money managers purchased the equivalent of 56 million barrels in the six most important petroleum-related futures and options contracts in the week to May 17.

(Chartbook: https://tmsnrt.rs/38KmVwL)

Funds purchased petroleum at the fastest rate for more than four months, according to records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Most of the buying came from the initiation of new bullish long positions (+40 million) rather than closing out old bearish short ones (-15 million).

GLJ

Nearly all the buying was concentrated in crude (+55 million barrels), with large purchases of Brent (+24 million) and NYMEX and ICE WTI (+31 million). WTI purchases were the fastest since November 2020.

GLJ

On the products side, there were minor purchases of U.S. gasoline (+4 million) and U.S. diesel (+2 million), but these were offset by low sales of European gas oil (-5 million).

Hedge funds appear to expect EU sanctions to reduce Russia’s exports significantly and worsen a global oil supply deficit, with the main impact felt on crude and partially refined heavy fuel oil.

Bullishness does not extend to fuels, however; either because fund managers think products such as distillates will be exempt from sanctions or that any sanctions impact will be offset by the deteriorating economic outlook.

Fund managers are notably less bullish about Europe than for the United States, which probably reflects Europe’s greater exposure to the war in Ukraine and faster deceleration of the region’s economies.



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