Junk traders now rule the oil market

Despite a slight uptick in bullish bets last week, portfolio managers trimmed their long positions in oil futures over the past two months, fearing a slowdown in demand and increased supply.

In the week to August 27, hedge funds and commodity trading advisors were net buyers of the equivalent of 32 million barrels in the six most traded crude and oil futures, after net sales of 48 million barrels in the week previous, according to the data from the commercial exchanges. compiled by energy analyst John Kemp in his BLOGS.

Extremely bearish positioning

However, the buying in the last reporting week did little to reverse the halving of bullish bets on oil futures since early July.

Traders remain very bearish on oil amid worries about global oil demand, particularly in the world’s biggest crude importer, China. The prospect of OPEC+ adding more supply also weighed on sentiment this week, but today OPEC+ decided to hold off on raising production for at least another two months.

Traders and analysts fear the market will not absorb additional barrels amid slower-than-expected demand and rising non-OPEC+ supply, particularly from North and South America – the US, Canada, Brazil and Guyana.

In the week to August 27, hedge funds and other portfolio managers added new longs Brent Crudeled by stop to separate of Libya’s oil production due to a political conflict between rival governments in the east and west.

As a result, the net long position – the difference between bullish and bearish bets – rose 31% to 81,000 lots in the week to 27 August. At the same time, the demand for the US benchmark WTI he was relatively mute. Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a comment regarding the positioning of traders.

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Overall, the combined net value of 267,000 lots “remains near the bottom of the long-term range due to relatively weak price action as traders remain skeptical of crude’s upside potential amid rising OPEC+ production and weakening demand China,” Hansen said.

Hedge fund positioning is so bearish that there is more than enough room to short and add long. But since August 27, the end of the last reporting period, more news and data have piled up to further influence market sentiment and oil prices.

Fed rate cuts?

Even with the prospect of the Fed starting to ease monetary policy later this month, oil market participants continue to fear that global oil demand was weaker during the summer demand peak and that China has not yet introduced additional incentives to boost their economy and boost their higher oil demand.

It will take an upbeat reading on late-summer demand in the coming weeks and signs of a drawdown in global commercial inventories to boost oil prices and make traders more bullish on the commodity.

By Tsvetana Paraskova for Oilprice.com

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