Column: Funds bought U.S. crude ahead of big freeze – John Kemp

FILE PHOTO: FILE PHOTO: Pump Jacks are seen at sunrise near Bakersfield
FILE PHOTO: Pump Jacks are seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo/File Photo

February 15, 2021

By John Kemp

LONDON (Reuters) – Hedge funds purchased more petroleum last week, but buying was almost entirely concentrated in WTI, which suggests it was driven by the prospect of freezing weather temporarily hitting U.S. oil production.

Hedge funds and other money managers purchased the equivalent of 33 million barrels in the six most important petroleum-linked futures and options contracts in the week to Feb. 9.

But the buying was concentrated in NYMEX and ICE WTI (+30 million barrels) and to a lesser extent European gas oil (+7 million), according to ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

There were only very minor changes in Brent (+2 million) and U.S. diesel (+1 million) while U.S. gasoline (-5 million) saw selling for the second week running (https://tmsnrt.rs/3tY3c2l).

Combined positions across all six contracts are now just over the 80th percentile for all weeks since 2013, implying most portfolio managers anticipate further price increases in the short term.

Fund managers have increased their bullish positioning for 14 weeks running, by a total of 531 million barrels, the longest and largest increase in bullish positions since the first four months of 2019.

The hedge fund community remains bullish even though crude prices have increased by more than half in less than three months since the first successful coronavirus vaccines were announced in early November.

But the concentration of buying in WTI implies that much of the buying in the most recent week was fuelled by U.S.-specific factors, while the more internationally-oriented Brent contract saw little change.

Forecast freezing weather, which has now arrived, was expected to hit oil and gas production across the Great Plains and down into the Permian Basin of Texas, temporarily curbing crude supply in the United States.

On the other side of the Atlantic, buying in European gasoil was likely driven by the prospect of colder whether across much of Europe as well as the strong recovery in global freight and manufacturing consumption.

Related columns:

– Funds rotate from gasoline to diesel as epidemic lingers (Reuters, Feb. 8)

– Manufacturing and freight drive diesel-led oil recovery (Reuters, Feb. 2)

– Oil prices stall, hedge funds cautious buyers (Reuters, Feb. 1)

– Hedge fund positions in crude, gasoline start to look stretched (Reuters, Jan. 18)

(Editing by David Evans)