Despite a minor increase in bullish positions last week, portfolio managers have significantly reduced their long positions in oil futures over the past two months, driven by concerns about slowing demand and rising supply.
For the week ending August 27, hedge funds and commodity trading advisors were net buyers of 32 million barrels in the six most traded crude and petroleum futures. This follows a net sale of 48 million barrels the previous week, according to data compiled by energy analyst John Kemp on his blog. However, this buying activity has not reversed the trend of decreased bullish bets, which have more than halved since early July.
Traders remain predominantly bearish on oil, largely due to uncertainties surrounding global oil demand, particularly from China, the world’s largest crude oil importer. Additionally, the anticipation of increased supply from OPEC+ has further dampened market sentiment. However, OPEC+ has recently decided to postpone output increases for at least another two months.
Concerns persist that the market may struggle to absorb additional barrels due to slower-than-expected demand and rising non-OPEC+ supply from countries such as the U.S., Canada, Brazil, and Guyana.
During the week to August 27, there was a notable increase in long positions for Brent Crude, spurred by a halt in part of Libya’s oil production due to political tensions. As a result, the net long position—indicating the difference between bullish and bearish bets—rose by 31% to 81,000 lots. Meanwhile, demand for the U.S. benchmark WTI remained subdued, as noted by Ole Hansen, Head of Commodity Strategy at Saxo Bank.
Despite this increase, the overall combined net long position stands at 267,000 lots, which remains at the lower end of the long-term range. This is attributed to weak price action and continued skepticism about the potential for significant price increases amid ongoing OPEC+ production rises and softness in Chinese demand.
The bearish sentiment among hedge funds indicates room for reducing short positions and increasing long positions. However, since August 27, additional negative news and data have further impacted market sentiment and oil prices.
Market participants are also keeping an eye on potential Federal Reserve interest rate cuts later this month. Despite this, there are concerns about persistently weak global oil demand and the lack of additional stimulus from China to bolster its economy and oil consumption.
For oil prices to recover and for traders to become more optimistic, a significant uptick in end-of-summer demand and evidence of decreasing global commercial inventories will be necessary in the coming weeks.
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