Kemp: Hedge Funds Gamble For A Third Time On Oil Rebalancing

Reuters

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

LONDON, Aug 14 (Reuters) - "If at first you don't succeed, try, try, try again," goes the proverb used to encourage students.

Hedge fund managers are becoming bullish towards crude oil and refined fuels for the third time this year and must be hoping the signs of market rebalancing are real this time after early setbacks proved costly.

Hedge funds and other money managers raised their net long position in the three major futures and options contracts linked to Brent and West Texas Intermediate (WTI) to 705 million barrels in the week to Aug. 8. (http://tmsnrt.rs/2hYVRPj)

Fund managers have boosted their net long position in Brent and WTI by the equivalent of 347 million barrels over the six weeks since June 27, according to regulatory and exchange data.

Managers have nearly doubled their net long position in crude since the end of June and now have the largest net position since April.

Long positions outnumber their short positions by a ratio of 5.19:1, up from a recent low of just 1.95:1 on June 27, displaying a pronounced bullish bias.

But in the most recent week, the extra net length all came from the ICE Brent contract, where long positions were increased by 40 million barrels while short positions were trimmed by 19 million.

By contrast, net positions in NYMEX and ICE WTI were little changed, with long positions trimmed by 2 million barrels and short positions actually up by 1 million.

Increased net length in Brent is likely connected to a sudden tightening of the calendar spreads, which has seen Brent move from contango into backwardation between October and December 2017 (V7-Z7).

More generally, Brent calendar spreads have tightened much more than WTI since the last week of July, which has made Brent more profitable for hedge fund managers with long positions.

Increased bullishness towards crude has also been mirrored in hedge fund positions for U.S. gasoline and heating oil.

Hedge funds raised their net long position in gasoline by 2 million barrels to 47 million barrels in the week to Aug. 8. Fund managers are now more bullish on gasoline prices than at any time since the middle of February.

Portfolio managers also raised their net long position in U.S. heating oil by 6 million barrels to almost 25 million barrels.


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