LONDON- Portfolio investors anticipate petroleum prices will remain rangebound in the short term so positioning is increasingly focused on expected changes in relative performance among the major crude and fuels contracts.
On the crude oil side, investors have revealed a strong preference for Brent over WTI, while among fuels, US contracts are favored over European gas oil.
Hedge funds and other money managers sold the equivalent of 11 million barrels in the six most important petroleum futures and options contracts over the seven days ending on January 16.
Funds sold the equivalent of 24 million barrels in WTI while purchasing 18 million barrels in Brent, according to records filed with ICE Futures Europe and the US Commodity Futures Trading Commission.
There were only minor changes in US gasoline (-3 million barrels), US diesel (-3 million) and European gas oil (+2 million).
But that left major divergences in positioning.
Funds were extremely bearish towards WTI, with a net position of just 43 million barrels, the third-lowest weekly position since 2013.
By contrast, they held a neutral position in Brent, with a position of 227 million barrels, almost exactly in line with the average since 2013.
Managers appear to have concluded production growth will continue to pressure prices in the United States while conflict in the Middle East will provide some support for prices in Europe and Asia.
On the fuels side, bullish positioning in US gasoline and US diesel (both in the 60-70th percentiles) contrasted with very bearish positioning in European gasoil (in the 13-14th percentile).
Funds appear to be betting on the contrasting economic outlooks between continued growth in the US economy and a lingering recession in Europe.
Investors are trying to build a bullish position in US gas in the expectation very low prices will eventually eliminate the current excess inventories.
The same strategy has been tried and failed repeatedly over the last year but must eventually work so investors are trying it again.
Hedge funds and other money managers purchased the equivalent of 331 billion cubic feet (bcf) of gas in the two major futures and options contracts over the seven days ending on January 16.