Fund managers realized some profits from bullish long positions last week as oil prices climbed to their highest in three years, becoming net sellers of petroleum contracts for the first time since August.
Hedge funds and other money managers sold the equivalent of 16 million barrels in the six most important petroleum-related futures and options contracts in the week to Oct. 12.
Investment managers had purchased a total of 194 million barrels over the previous seven weeks, according to records published by the U.S. Commodity Futures Trading Commission and ICE Futures Europe.
In the most recent week, fund sales were dominated by the liquidation of previous bullish long positions (-23 million barrels) with some reduction in short positions as well (-7 million).
The pattern is consistent with profit-taking, after benchmark Brent prices rose $18 per barrel, or 28%, since late August, rather than a fresh wave of short-selling.
Sales were concentrated in Brent (-32 million barrels), with some buying in NYMEX and ICE WTI (+15 million) and U.S. diesel (+2 million), and no change in either U.S. gasoline or European gas oil.
Money managers' combined position across all six contracts was equivalent to 855 million barrels (77th percentile for all weeks since 2013) while long positions outnumbered shorts by a ratio of 6.9:1 (86th percentile).
There is an unusually heavy concentration towards middle distillates, where the net long position is 153 million barrels (87th percentile) and the long-short ratio is more than 14:1 (a record).
Middle distillates such as U.S. diesel and European gas oil have the greatest exposure to the economic cycle and are in high demand as a result of strong growth in global manufacturing and freight transport.
Shortages of gas, coal and electricity could also give distillates a boost this winter in North America and Eurasia if they encourage more fuel switching and increased use of off-grid generators for heating and power.
More generally, bullish positions in petroleum are being underpinned by the reluctance of OPEC+ and U.S. shale producers to increase their output despite prices surging to the highest level since October 2018.
But the petroleum position in general, and distillates in particular, are becoming crowded trades, increasing the risk of a sharp reversal in prices if consumption proves weaker than expected, or fund managers attempt to take some profits.
(John Kemp is a Reuters market analyst)
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