Hedge funds take profits but believe oil prices will continue to rise

The portfolio managers are still betting on higher oil prices in the short term, despite liquidating some of their long positions to take advantage of the rise in prices in recent weeks. Hedge funds reduced their net long position (the difference between bullish and bearish bets) in Brent crude and WTI crude for the fourth week in a row in the week leading up to November 2. However, the decline in the net long position was mainly due to liquidating long positions rather than opening short positions as financial managers sought to take profits ahead of the Fed’s policy announcement and decision. of the OPEC + group on oil supply.

Overall, in the week leading up to November 2 – the last week of the Commitment of Traders (COT) report – hedge funds continued to believe oil prices could rise.

The positioning of the portfolio managers in the most actively traded oil futures and options continues to indicate widespread bullish sentiment in the market, which is also reflected in the latest forecast from the US Energy Information Administration (EIA). and the latest outlook on oil demand. by large investment banks and oil companies.

In the week to November 2, hedge funds sold the equivalent of 45 million barrels in the six largest oil contracts, according to estimates by John Kemp, Market Analyst at Reuters based on the latest TOC report.

Related: The Oil Price Rally Is Far From Over But sales were mostly driven by the liquidation of long positions, not new short positions, suggesting that the portfolio managers paused and took profits after the closing. Oil prices rise in October.

“In Energy, the net sale of WTI and Brent extended to a fourth week, with the combined net long being reduced from 27,000 lots to a two-month low of 573,000 lots. Long positions in Brent were already reduced before the October 26 price fell 4 cents to a 2018 high, and since then the long sell-off has resumed, ”Ole Hansen, Head of Commodities Strategy at Saxo Bank, noted Monday, commenting on the COT report.

“With all petroleum products also hit by profit taking, the total reduction of 50,000 lots was the biggest reduction in the industry since August,” added Hansen.

While profit taking dominated the oil market in the days leading up to the Fed’s policy announcement and the OPEC + meeting on November 3 and 4 respectively, the positioning data still points to a generally bullish market sentiment. .

The world’s largest investment banks echo this bullish position, many predicting that oil could reach $ 90, $ 100 or even $ 120 per barrel over the next six months, thanks to a rebound in air transport, the substitution of oil for gas amid high natural gas prices and a full return of Asian demand.

Related: Oil Rally Reverses On Signs Of Cooling Demand

Global oil demand has already exceeded 100 million barrels per day (bpd) last seen before the pandemic, supermajor BP said earlier this month.

“We are currently at 2019 levels or so,” Russell Hardy, CEO of the world’s largest independent oil trader Vitol, told Reuters’ online commodities trading conference this week, tel. that worn by Bloomberg.

Demand is expected to continue growing next year, Hardy added.

“Crude oil prices have increased over the past year due to the continued depletion of global oil stocks, which have averaged 1.9 million barrels per day (b / d) over the years. first three quarters of 2021, “the EIA said. noted in its latest Short-Term Energy Outlook (STEO) published on Tuesday.

The EIA expects Crude Brent Price will remain near current levels for the remainder of 2021, averaging $ 82 per barrel in the fourth quarter. Next year, Brent is expected to average $ 72 a barrel amid higher production from OPEC +, U.S. shale and other non-OPEC + countries to outpace slower growth of world oil consumption.

“We expect global inventories to increase from spring 2022, which will likely reduce some of the market tightening that could contribute to the high prices in the first month,” the EIA Noted.

The OPEC + group and its leader Saudi Arabia continue to justify the decision to keep the market tight with a build-up of stocks expected within a few months. But the current tight supply is making hedge funds and investment banks bullish on oil in the near term.

By Tsvetana Paraskova for OilUSD

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Felix J. Dixon

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