Hedge funds and other money managers sold the equivalent of 9 million barrels in the six most important futures and options contracts in the week to June 28, following on from sales of 71 million in the week to June 21.
Most the recent adjustment has come from the liquidation of former bullish long positions as the outlook for the economy and oil consumption has darkened amid rising inflation and interest rates.
Fear of more U.S. and EU sanctions on Russia’s petroleum exports has so far deterred aggressive short selling of the oil complex.
Over the last three weeks, the total number of bullish long positions has been reduced by 87 million barrels, while bearish short positions have boosted marginally by 5 million barrels.
The most recent week saw sales of Brent (-12 million barrels), European gas oil (-4 million), U.S. gasoline (-3 million) and U.S. diesel (-2 million) partially offset by purchases of NYMEX and ICE WTI (+11 million).
Upside price risks from sanctions on Russia’s crude and distillates are now matched or over-matched by downside risks from the loss of momentum in manufacturing and freight.
As a result, fund managers have gradually taken risk off the table, with the combined position down to 556 million barrels (39th percentile for all weeks since 2013) from 761 million (71st percentile) in mid-January.
John Kemp is a Reuters market analyst. The views expressed are his own.