Investors bet against OPEC+ raising oil prices

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Investors are increasingly pessimistic about the outlook for crude oil prices as doubts grow OPEC+ will cut production enough to offset rising non-OPEC output and a deteriorating economic outlook.

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But many professional money managers are more optimistic about refined fuel prices, especially U.S. gasoline and diesel, expecting low inventories will ensure prices remain stronger than crude.

Hedge funds and other money managers sold the equivalent of just 3 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Nov. 21.

Crude sales (-25 million barrels) including Brent (-16 million) and NYMEX and ICE WTI (-9 million) were offset by purchases of fuels (+21 million) including U.S. gasoline (+13 million) and European gas oil (+10 million).

Chartbook: Oil and gas positions

The combined position in crude had been reduced to just 225 million barrels, which was in the lowest percentile and within 20 million barrels of the record low in a time series that goes back to 2013.

The position in NYMEX and ICE WTI was especially low at just 70 million barrels (2nd percentile for all weeks since 2013) as U.S. oil production continues to climb.

Fund managers had sold WTI for eight weeks, reducing their position by a total of 216 million barrels since the end of September.

In consequence, funds have become almost as bearish on crude as they were at the end of June before Saudi Arabia and its OPEC+ partners implemented additional production cuts.

By contrast, the position in fuels was 114 million barrels (51st percentile), with substantial positions in U.S. gasoline (64 million barrels) and U.S. diesel (33 million barrels).

Funds have bought gasoline for five weeks running, adding a total of 38 million barrels since the middle of October.

U.S. NATURAL GAS

Hedge funds and other money managers sold the equivalent of 236 billion cubic feet (bcf) in futures and options based on delivery to Henry Hub in Louisiana.

Sales over the last three weeks have totalled 958 bcf and reduced the net position to its lowest level since the end of September.

As a result, the net position was cut to a net short of 15 bcf which was in only the 31st percentile for all weeks since 2010.

Fund managers’ repeated efforts to build a bullish long position in gas have been thwarted by warmer than average temperatures and strong production growth.

Working gas inventories in underground storage were +128 bcf (+3% or +0.49 standard deviations) above the prior ten-year seasonal average on Nov. 17.

The surplus had swelled from +60 bcf (+2% or +0.23 standard deviations) at the start of October despite very low prices.

Given the persistent surplus, prices will likely have to remain very low for the next few months to force the market towards balance.

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