Hedge funds were big buyers of petroleum for the fourth week running, boosting their bullish position to its highest for more than 30 months, as U.S. shale firms declined to respond to rising prices.
Hedge funds and other money managers purchased the equivalent of 51 million barrels in the six most important petroleum futures and options contracts in the week to June 22.
Portfolio managers have purchased a total of 168 million barrels in the four most recent weeks, taking their total position to 996 million, the highest since October 2018.
Investors have not been this bullish since before the coronavirus epidemic spread worldwide in early 2020 and the U.S./China trade war intensified in late 2018.
Last week’s purchases were focused on NYMEX and ICE WTI (+47 million barrels) with small buying in U.S. gasoline (+8 million) and U.S. diesel (+6 million), but sales in Brent (-3 million) and European gas oil (-8 million).
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Fund buying has concentrated heavily on U.S. crude contracts, with the combined NYMEX and ICE position up by 105 million barrels over the last four weeks, accounting for more than 60% of the total.
In WTI, bullish long positions outnumber bearish shorts by a ratio of almost 13:1, compared with a ratio of just 4:1 in Brent (tmsnrt.rs/3dhj75d).
U.S. shale producers have declined to add extra drilling rigs or boost output significantly despite the rise in prices. The number of rigs drilling for oil is less than half that when prices were last at this level in 2018.
U.S. commercial crude inventories fell below the pre-epidemic five-year average for 2015-2019 for the first time in the first week of June, in a signal the market is tightening rapidly.
Crude stocks around the NYMEX WTI delivery point at Cushing are already 12 million barrels or 22% below the pre-epidemic five-year average and still trending lower.
The number of hedge fund short positions in NYMEX WTI fell to a three-year low in the middle of June, though it rose again slightly last week.
Portfolio managers are becoming increasingly bullish even though prices are already well above the average in real terms, responding to indications that shale producers will continue to hold back production.
With U.S. shale producers staying on the sidelines, OPEC+ has more scope to draw down global inventories and push prices higher without worrying about the loss of market share.