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Tags: Financial Markets | Infrastructure | Middle East | Money | Russia | oil and gas industry | hedge fund

Profit-Taking Hits Hedge Funds' Oil Positions

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Monday, 08 November 2021 07:40 AM

Petroleum-related derivative markets were hit by the largest wave of hedge fund selling last week for almost three months as portfolio managers realized some profits after the recent rally in oil prices.

Hedge funds and other money managers sold the equivalent of 45 million barrels in the six most important petroleum-related futures and options contracts in the week to Nov. 2.

Most selling was driven by the reduction of existing bullish long positions (-39 million barrels) rather than the creation of new bearish short ones (+6 million), consistent with profit-taking rather than aggressive short selling.

Portfolio managers were sellers across the whole complex, including NYMEX and ICE WTI (-15 million barrels), Brent (-10 million), European gas oil (-9 million), U.S. heating oil (-6 million) and U.S. gasoline (-5 million).

The formerly most bullish parts of the complex (WTI and middle distillates) experienced the largest sales, again consistent with profit-taking after a strong rally that had taken prices to multi-year highs since the summer.

The weekly sales were the largest since the week ending Aug. 10, and in the 18th percentile for all weekly position changes since 2013, implying a small but significant shift in the hedge fund community’s outlook.

Still Bullish, But Less So

Portfolio managers are still bullish towards petroleum prices (the ratio of long to short positions is in the 80th percentile) but less than bullish than two weeks ago (when the ratio was in the 87th percentile).

Position ratios in crude are still high (72nd percentile) but have retreated modestly from their recent peak on Oct. 19 (77th percentile).

The overall picture is one where hedge funds still think prices are more likely to rise further rather than fall, but the balance of risks has shifted somewhat after a strong rally, tempting some to lock in a portion of their profits.

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

© 2022 Thomson/Reuters. All rights reserved.


StreetTalk
Petroleum-related derivative markets were hit by the largest wave of hedge fund selling last week for almost three months as portfolio managers realized some profits after the recent rally in oil prices.
oil and gas industry, hedge fund, energy, inflation
317
2021-40-08
Monday, 08 November 2021 07:40 AM
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