Column: Oil investors ready for recession: Kemp

LONDON, Oct 3 (Reuters) – Portfolio investors continued to flee from the oil market last week amid multiplying signs of an imminent recession that would cut petroleum consumption.

Hedge funds and other money managers sold the equivalent of 34 million barrels in the six most important petroleum futures and options contracts in the week to Sept. 27.

Funds have sold in 10 of the last 16 weeks with positions reduced by a total of 237 million barrels since early June, according to position records published by ICE Futures and the U.S. Commodity Futures Trading Commission.

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The combined position has been cut to just 410 million barrels (18th percentile for all weeks since 2013) from 647 million barrels on June 7 (57th percentile).

Bullish long positions outnumber bearish short ones by only 3.63:1 (40th percentile) down from 6.68:1 (85th percentile).

Chartbook: CFTC and ICE commitments of traders

The most recent week saw heavy sales of NYMEX and ICE WTI (-23 million barrels) and more modest sales of Brent (-4 million), U.S. diesel (-4 million) and European gas oil (-3 million), with no change in U.S. gasoline.

The combined position across all three crude contracts has dwindled to just 314 million barrels (10th percentile) from 513 million on June 7 (55th percentile), as confidence in a price rebound has evaporated.

In middle distillates, the most cyclically sensitive contracts, the combined position in diesel and gas oil has fallen to just 45 million barrels, the lowest level since November 2020, before the first successful coronavirus vaccines were announced.

Fund managers are preparing for a moderate-to-severe downturn in the business cycle cutting consumption – with the most significant impacts felt in crude and the distillates used primarily in freight transport and manufacturing.

Inventories of both crude and refined fuels remain at multi-decade lows in the major consumption centres, but a cyclical downturn is expected to stabilise and rebuild them, ending upward pressure on prices.

Related columns:

Hedge funds dump distillates as recession risks intensify (Reuters, Sept. 26)

Recession will be necessary to rebalance the oil market (Reuters, Sept. 22)

Oil prices and financial markets brace for recession (Reuters, Sept. 15)

Funds cut diesel positions amid fears of economic slowdown (Reuters, Sept. 12)

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

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Editing by David Evans

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.

Thomson Reuters

John Kemp is a senior market analyst specializing in oil and energy systems. Before joining Reuters in 2008, he was a trading analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivative markets, risk management, policy and transitions.

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