Fears over the Omicron coronavirus variant’s impact on international aviation and other sources of oil demand have prompted massive liquidation of previously bullish hedge fund positions.
Hedge funds and other money managers sold the equivalent of 131 million barrels in the six most important petroleum futures and options contracts in the week to Nov. 30.
The one-week sale was the 13th largest in 455 weeks since the start of 2013 and was a result of Omicron fears converging with low levels of liquidity after the Thanksgiving holiday in the United States.
Total sales since the start of October have reached 293 million barrels, according to position records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission. In the most recent week there was heavy selling across Brent (-45 million barrels), NYMEX and ICE WTI (-43 million), European gas oil (-22 million), U.S. gasoline (-13 million) and U.S. heating oil (-8 million).
The combined position across all six contracts has fallen to 578 million barrels (44th percentile for all weeks since 2013), down from 871 million barrels (79th percentile) on Oct. 5.
Bullish long positions outnumber bearish short ones by a ratio of 3.9:1 (48th percentile), down from 6.7:1 (84th percentile) eight weeks ago.
In benchmark Brent, fund positions have been cut drastically to 167 million barrels (24th percentile), down from 333 million barrels (69th percentile).
Portfolio managers had been selling crude and other products in small volumes regularly through October and November, realizing some profits after the earlier price rally.
Sales also reflected concerns that the market could become overheated, with the long-short position very lopsided, as well as growing expectations of a release of emergency oil stocks.
Omicron arrived in a market that was already trending down and served to turn gentle selling pressure into a flood at a time when low liquidity helped to create the conditions for prices to plunge.
The new coronavirus variant has shaken the speculative froth out of the market and left benchmark prices close to long-term averages in real terms and positions neutral.
Mon, 12/06/2021 – 12:44
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Author: Tyler Durden