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Hedge-fund managers are liquidating bullish oil positions at the fastest rate since the fourth quarter of 2018 amid increasing fears about the health of the global economy.

Hedge funds and other money managers were net sellers of 104 million barrels of futures and options linked to the six most important petroleum contracts in the week to June 4.

Fund managers have sold a total of 290 million barrels of petroleum in the past six weeks, after buying 609 million in the previous 15 weeks since Jan. 8.

Portfolio managers still have an overall bullish position of 621 million barrels, but that has been reduced sharply from a peak of 911 million on April 23.

Funds were net sellers last week of Brent (48 million barrels), NYMEX and ICE WTI (13 million barrels), U.S. gasoline (10 million), U.S. heating oil (five million) and European gasoil (28 million).

Hedge-fund long positions now outnumber short positions by a ratio of 4 to 1, down from almost 9 to 1 on April 23, according to an analysis of exchange and regulatory records.

Mounting fears about a possible recession in the United States and around the rest of the world have outweighed continued output restraint by Saudi Arabia and disruptions to exports from Russia, Iran and Venezuela.

Since the end of April, oil prices have tumbled in tandem with equity prices and bond yields, before recovering slightly late last week amid growing hopes of a cut in interest rates by the U.S. Federal Reserve.

Nowhere is the impact of economic fears more evident than in the market for middle distillate fuels such as U.S. heating oil and European gasoil.

In theory, distillate prices should be supported by the scheduled introduction of new marine fuel regulations by the International Maritime Organization (IMO) from the start of 2020.

New rules will oblige ship owners to install exhaust gas cleaning systems (”scrubbers”) or switch from burning high-sulphur residual fuel oil to lower-sulphur fuels such as marine gasoil.

But mid-distillate fuels are also the most exposed to a slowdown in global freight flows and manufacturing, and concerns about the economy are dominating over the prospect of the new IMO fuel rules.

Hedge funds now hold the most bearish position in U.S. heating oil since July, 2017, with an overall net short position of 13 million barrels.

Fund managers still hold a bullish position in European gasoil of 48 million barrels, but that has been cut in half from a recent peak of 96 million barrels on May 21.

After the heavy selling since the end of April, and especially in the past two weeks, much of the froth has been blown off the oil market.

What happens next depends critically on the trajectory for the global economy and how the Federal Reserve and other major central banks react.

If the economy regains momentum, or remains sluggish but global central banks avert a recession by cutting interest rates, then oil prices are likely to rebound.

Production disruptions and the looming introduction of IMO fuel regulations will take centre stage again and will likely push prices higher toward the end of the year and into 2020.

If the economy stumbles into recession, however, the prospective slowdown in oil consumption growth and rise in oil inventories will take prices down further to enforce a further slowdown in supply growth and stimulate more fuel use.