Portfolio investors sold record volumes of petroleum last week after Opec⁺ surprised the market by announcing plans to increase production starting from the fourth quarter of 2024.
Hedge funds and other money managers sold the equivalent of 194 million barrels in the six most important futures and options contracts over the seven days ending on June 4.
Fund sales were the fastest for any week since at least 2013 when the US Commodity Futures Trading Commission and ICE Futures Europe began publishing data in the current format.
Sales were more than three standard deviations away from the average weekly change, indicating how surprised investors were by the announcement to raise production.
Investors sold Brent (-102 million barrels), Nymex and ICE WTI (-53 million), European gas oil (-17 million), US diesel (-15 million) and US gasoline (-6 million).
Sales of crude in general and Brent in particular were also the fastest on record as traders concluded the crude market would be comfortably through the rest of the year and into 2025.
But heavy selling of refined fuel contracts indicates investors were also reacting to signs of tepid consumption and swelling inventories of gasoline and diesel.
Investors had become bearish or very bearish about all elements of the petroleum complex.
Total petroleum positions were slashed to 208 million barrels (1st percentile for all weeks since 2013) the lowest since a single week in December 2023 and before that January 2016.
Brent positions were cut to their third-lowest level on record at just 46 million barrels, down from 335 million just seven weeks earlier.
Intense hedge fund selling helped push front-month Brent futures prices down to their lowest level for four months on June 4.
In subsequent speeches as well as an online briefing to oil analysts, Opec⁺ officials have reiterated that the scheduled increase can be “paused or reversed subject to market conditions”. The re-emphasis on the contingent nature of the planned boost seems to have steadied the market with prices rising slightly.
But the group’s recent meeting will go on record as a major “Opec⁺ surprise” – even if it did not turn out as ministers intended.
US natural gas
Hedge funds turned a little more cautious about the outlook for US gas prices last week after inventories remained stubbornly high and took some of the recent bullishness out of the market.
Funds sold the equivalent of 90 billion cubic feet (bcf) in the two major futures and options contracts linked to gas prices at Henry Hub in Louisiana over the seven days ending on June 4.
It was the first net sale for five weeks as funds added more bearish short positions (114 bcf) than new longs (24 bcf).
Nonetheless, the resulting net long position of 791 bcf (52nd percentile for all weeks since 2010) remained well above the recent net short of 1,675 bcf (3rd percentile) in mid-February.
Working inventories were the second-highest on record for the time of year on May 31 and 612 bcf (+27 per cent or 1.45 standard deviations) above the prior 10-year seasonal average.
After swelling through much of the winter of 2023-24, the surplus has not increased since mid-March, hearting bullish investors, but it has not yet narrowed either, injecting an element of caution.