Column: Oil prices paralysed between Russia sanctions and China lockdowns: Kemp

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, U.S., November 22, 2019. REUTERS/Angus Mordant

LONDON, April 25 (Reuters) – Portfolio investors purchased petroleum last week for the first time in four weeks, but overall positioning remained subdued by the high cost of margin and large uncertainties surrounding both crude supply and demand.

Hedge funds and other money managers bought the equivalent of 14 million barrels in the six most important petroleum-related futures and options contracts in the week to April 19 (https://tmsnrt.rs/3ELuZsB).

But the position has remained unchanged since mid-March as opposing concerns about the sanctions-related loss of production from Russia and lockdown-related loss of consumption in China have cancelled each other out.

The combined net long position of 553 million barrels is in only the 39th percentile for all weeks since 2013 while the ratio of long to short positions at 4.59:1 is somewhat higher in the 59th percentile.

Fund managers remain moderately bullish about the outlook for prices but extreme volatility has made it risky and expensive to maintain existing positions or initiate new ones.

Reflecting higher margin calls, the total number of open futures positions for all categories of trader is the lowest for seven years, although it has stabilised in the last fortnight after falling sharply since mid-February.

The most recent week showed hedge funds buying Brent (+27 million barrels), U.S. gasoline (+3 million) and U.S. diesel (+1 million) but selling NYMEX and ICE WTI (-16 million) and European gas oil (-1 million).

Fund managers rotated out of WTI into Brent, likely reflecting the massive offer of extra barrels from the Strategic Petroleum Reserve in the United States and possible European Union sanctions on imports from Russia.

Overall, funds are much more bullish for middle distillates and other refined products than for crude, reflecting strain on the refining system from strong demand for diesel and gas oil by manufacturers and freight firms.

Related columns:

– Funds sell oil as economic weakness trumps sanctions (Reuters, April 11) read more

– Hedge funds struggle with triple uncertainties on oil (Reuters, April 4) read more

– White House uses oil reserve to place a giant spread trade (Reuters, April 1) read more

– China’s cooling economy takes some heat out of commodity prices (Reuters, March 31) read more

– Hedge fund oil positions caught between risks from sanctions and recession (Reuters, March 29) read more

John Kemp is a Reuters market analyst. The views expressed are his own

Reporting by John Kemp; Editing by Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.