Money managers ended the weeks of sales of the most negotiated oil contracts last week, indicating that the oil price correction seen in August may have followed its course.
Last month, oil prices recorded their first monthly loss since March, and the the biggest loss since this October 2020, with the WTI and Brent benchmarks falling more than 7% in August.
Concerns about the pace of global oil demand amid growing cases of COVID depressed the oil market. Indications that the Fed would begin to reduce its asset purchase program have also weighed on sentiment in recent weeks.
But over the past seven days in August, hedge funds and other portfolio managers bought the six largest oil options and futures contracts at the second-highest purchase rate this year.
Hedging funds bought the equivalent of 60 million barrels of contracts in the week ending Aug. 31, according to stock market data compiled by market analyst Reuters John Kemp.
This compares with money managers who sold a total of 268 million barrels to the oil complex over the previous ten weeks.
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Positioning of hedge funds at the US crude oil benchmark, WTI, remained virtually unchanged between the week and August 31, but there was a significant purchase of the international benchmark, Brent.
Medium distillates, including options and futures contracts on U.S. gasoline and diesel, also experienced strong buying interest after Hurricane Ida interrupted most of the crude oil production in the Gulf of Mexico in the United States and the forced temporary shutdown of nine Louisiana refineries.
The Merchant Engagement Report (TOC) for the week to August 31 recorded a strong purchase of fuel and natural gas products in response to disruptions from Hurricane Ida, Ole Hansen, Head of Commodity Strategy at Saxo Bank, he commented. While WTI Crude saw no change in the long overall position, Brent long increased by 11 percent to 274,000 lots, Hansen added.
The rise in Brent Crude’s long net position – the difference between bullish and bearish bets – “shouldn’t come as a big surprise, given the recovery we’ve seen in oil prices in recent weeks,” strategists said. by ING Warren Patterson and Wenyu Yao dit earlier this week.
“The increase was driven by a combination of fresh longs and shorts,” they added.
Although hurricane-related disruptions boosted part of oil purchases in late August, the end of oil complex sales in the previous ten weeks indicates that the market could prepare for a new wave. of increased long positions.
Oil prices are not expected to rise by the end of the year due to persistent demand concerns with the Delta COVID variant, but prices are not expected to fall soon either.
Concerns about COVID could delay the recovery in oil demand it won’t leave much upside down as for oil prices for the rest of 2021, analysts reported in the Reuters monthly survey in late August, revising its forecast for this year for the first time since November. However, Brent prices will be set at an average of $ 68.02 per barrel throughout this year and WTI is expected to reach an average of $ 65.63, below the forecast of $ 66.13 in the July poll.
Despite the more uncertain outlook on oil with the Delta variant, some bullish signs have emerged over the past week.
Europe’s road fuel demand bounced during the summer holidays, with a demand for petrol again and even higher than the pre-COVID levels of the 2019 holidays.
In addition, rush hour traffic to the largest cities in England has returned to levels prior to COVID earlier this week as schools returned from vacation and travelers returned to the offices. Rush-hour traffic congestion in London, Birmingham, Wolverhampton, Nottingham, Leicester and Liverpool returned to levels seen in 2019, according to figures quoted by The Times.
China, the world’s largest importer of crude oil, saw it oil imports are on the rise in August from the minimum in July. Analysts dit earlier this month, Chinese refiners were already increasing purchases as the last round of Covid-19-related movement restrictions came to an end and were willing to pay higher prices to secure supply by the end of the year.
Oil prices may not have much room to rise in the short term, but last month’s correction may be over.
By Tsvetana Paraskova for Oilprice.com
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