Investors leaned on oil last week more than ever By Reuters

By Shariq Khan

NEW YORK (Reuters) – Investors were bearish than ever last week, deepening a months-long sell-off that has pressured prices to multi-year lows amid growing concerns about weak demand in the most big consumers.

Negative sentiment hit oil markets so hard that short positions outpaced long positions for the first time, data from the Intercontinental Exchange (NYSE: ) showed on Friday. Short positions – bets on lower prices – totaled 164,223 contracts, while long positions, or bets on higher prices, totaled 151,543 contracts, the data showed.

“This historic speculative selling pressure caused a more than $10/bbl collapse in crude oil prices between late August and last Tuesday,” Commodity Context analyst Rory Johnston wrote.

Investors’ outlook for oil worsened as demand growth for the commodity failed to reach the high levels of recent years, weighed down by turmoil in the economy of top importer China. Supplies have also overwhelmed markets this year, with US oil producers pumping record amounts of oil.

Brent crude oil futures settled below $70 a barrel on September 10 for the first time since December 2021. They closed at $72.75 a barrel on Tuesday, down more than 20% from this year’s peak above $90 per barrel in mid-April.

Hedge funds were particularly bearish on diesel as prices neared a three-year low, TACenergy traders wrote on Monday.

Money managers increased short bets on U.S. ultra-low sulfur diesel futures by more than 12,000 contracts to 65,084 contracts in the week to Sept. 10, data from the Commodity Futures Trading Commission showed.

ULSD futures fell to $2.04 a gallon last week, the lowest level since December 2021, dragged down by weak economic activity and growing use of alternative fuels.

The record low sentiment in speculative markets could mean that the months-long slide in oil prices is coming to an end, following historical patterns, market participants said.

“Extreme speculator positions are known to be reliable contrarians because when everyone gets on the same side of the boat, that’s when it flips,” said US fuel distributor TACenergy.

They cautioned that it is hard to predict when the positioning will reverse, but markets could see strong volatility when it does.

“With so much short interest combined, when the auction starts you can expect some rapid price increases,” TACenergy said.