Hedge funds became much more bullish about the outlook for U.S. crude prices last week, following an outage on Canada's Syncrude system, which supplies the U.S. Midwest, and a drawdown in crude stocks around Cushing.
But in the rest of the petroleum complex, the persistent liquidation of formerly record bullish positions continued for the tenth week running, according to an analysis of exchange and regulatory data.
Hedge funds and other money managers raised their combined net long position in the six most important petroleum futures and options contracts by 36 million barrels in the week to June 26.
Net long positions in NYMEX and ICE WTI climbed by 75 million barrels, the largest one-week increase since OPEC decided to cut its production levels at the end of November 2016.
Gross short positions in NYMEX WTI were slashed by 30 million barrels to leave just 20 million barrels remaining, the smallest number of short contracts since Feb 2013.
The rush of short covering and the creation of fresh long positions sent nearby futures prices surging and has pushed the six-month WTI calendar spread to a backwardation of more than $6 per barrel.
But bullish in WTI was linked to specific locational factors. Elsewhere, fund managers continued to realise profits and liquidate long positions (https://tmsnrt.rs/2KFCXa3).
Net long positions were cut in Brent (-5 million barrels), U.S. gasoline (-8 million barrels), U.S. heating oil (-11 million barrels) and European gasoil (-15 million barrels) in the week to June 26.
Net length in Brent has fallen by a total of 179 million barrels since peaking in early April while net length in refined products is down by 131 million barrels since peaking in mid-May.
Portfolio managers remain essentially bullish about the outlook for oil prices in the second half of 2018, with long petroleum positions outnumbering short ones by a margin of 9 to 1.
But funds have become more cautious since the middle of April, when the margin was almost 14 to 1, given the significant rise in prices over the last 12 months and potential for a slowdown in consumption growth.
By John Kemp