Money managers began in 2021 with optimism that oil prices will benefit from increased economic activity as vaccines are being implemented. Hedge funds and other portfolio managers maintained at the end of December 2020 the most bullish global position of the most traded futures and oil options contracts since early 2020. Fund managers maintained a net global position long, the difference between bullish and bearish bets. up to 741 million barrels of oil equivalent in the six largest oil contracts on December 29, according to trade data compiled by John Kemp, Reuters columnist.
This long net position was the highest net upside bet for oil since January 2020, just before prices began to fall as the pandemic boiled oil and other markets in February, March and April. .
The upward positioning of hedge funds in early 2021 was not without reason. The market in general, as well as many analysts, believe that oil will increase this year as global oil demand recovers most (but not all) losses from 2020. Vaccine deployment is expected to support economic activity and travel later this year, while stimulus packages are expected to boost major economies to recover from last year’s recessions.
Hedge funds therefore began in 2021 with a long net record position in all commodities, according to Saxo Bank.
Related: U.S. oil executives cautiously optimistic about 2021
“Overall, the biggest bets are made crude with the 614,000 long combined lots at WTI and Brent representing a face value of $ 30 billion,” said Ole Hansen, head of commodity strategy at Saxo Bank , in an analysis of the latest commitment of traders report with data for the week to December 29.
The long net position of crude oil – one of the two largest commodity contracts in terms of exposure, along with gold – is still well below its maximum, with 1.1 million lots held in March 2018, says Hansen.
However, bullish bets on oil have risen sharply since March and April lows, with most long positioning and short coverage in late 2020. Pharmaceutical companies began announcing vaccine candidates. in November; regulatory approvals in a few weeks. Vaccinations of front-line workers and vulnerable people also began in many countries in weeks. He vaccine-targeted oil concentration had the market and speculators hoping that with vaccines available by 2021, economies will recover more quickly and oil demand will increase.
However, the proportion of bullish declines in oil declines has become the highest since January last year, and set the stage for a decline in short-term bullish bets since a positioning perspective.
The short-term outlook for oil demand is not bullish at all. The UK came into its own this week third national blockade since the pandemic began, with people under orders to stay home until mid-February, except for jobs that can’t be done from home, essential shopping, or an hour of outdoor exercise. Germany and Italy, two other major European economies, also expanded their respective closures.
However, the oil market was hit hard on Tuesday Unilateral commitment by Saudi Arabia to cut an additional one million barrels per day of its production in February and March, while Russia was able to increase its production to 65,000 bpd in each of the next two months.
As a result, oil prices soared in the early hours of Wednesday to their highest level since February 2020, with WTI Cru operating above $ 50 a barrel and Brent Crude over $ 54.
Russia’s insistence on raising its output, which it obtained from OPEC + talks even at lower volumes of engagement, and Saudi Arabia’s significant cut to support prices demonstrate the distance between the positions of the two leaders of the OPEC + alliance. While this growing divergence in supply fixation policies could mean deeper fractures within the group, it helped support the oil market.
“Saudi Arabia’s surprise is constructive for oil, as it should ensure that the market continues to reduce inventories during the first quarter of 2015, despite concerns about demand with several new closures or the extension of existing blockades announced, ”ING strategists Warren Patterson and Wenyu Yao said dit Wednesday.
By Tsvetana Paraskova for Oilprice.com
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