Money managers started 2021 with optimism that oil prices will benefit from a surge in economic activity as vaccines are rolled out. Hedge funds and other portfolio managers had the most optimistic position in the most traded oil futures and options contracts since early 2020 at the end of December 2020. Fund managers had an overall net long position – the difference between bullish and bearish bets – of a whopping 741 million barrels of oil in the six major petroleum contracts on December 29, according to data from exchanges compiled by Reuters columnist John Kemp.
This net long position was the highest net bullish bet on oil since January 2020, just before prices started to crash as the pandemic devastated oil and all other markets in February, March and April.
The hedge funds’ bullish positioning in early 2021 was not without reason. The market in general, as well as many analysts, believe that oil will rise this year as global oil demand recoups most (but not all) losses from 2020. Vaccine launches are expected to boost economic activity and travel later this year, while stimulus packages will stimulate major economies to recover from last year’s recessions.
Hedge funds therefore started 2021 with a record net long position in all commodities Saxo Bank.
Related: US oil executives cautiously optimistic about 2021
“Overall, the largest bets are on crude oil, with the combined 614,000 lots in WTI and Brent representing a nominal value of $ 30 billion,” said Ole Hansen, head of Commodity Strategy at Saxo Bank, analyzing the latest commitment. of traders report with data for the week to December 29.
The net long position in crude oil – one of the two largest commodity contracts in terms of exposure, along with gold – is still well below the peak of 1.1 million lots held in March 2018, Hansen says.
Nonetheless, bullish bets on oil have risen dramatically from the March and April lows, with most of the long positioning and short coverage occurring at the end of 2020. Pharmaceutical companies began announcing vaccine candidates in November – vaccine candidates that obtained regulatory approvals within weeks. Vaccinations of frontline workers and vulnerable people also started in weeks in many countries. The vaccine-led meeting in oil the market and speculators hoped that with vaccines available in 2021, economies will recover more quickly and demand for oil will increase.
However, the ratio between bullish and bearish oil bets is the highest since January last year, paving the way for a decline in short term bullish betting from a positioning perspective.
The short-term demand side outlook for oil is not at all optimistic. The UK went into effect this week third nationwide lockdown since the start of the pandemic, with people staying at home until mid-February, except for work that cannot be done at home, essential errands or an hour of outdoor exercise. Germany and Italy, two other major economies in Europe, also extended their respective lockdowns.
However, the supply side of the oil market took a big hit on Tuesday Saudi Arabia’s unilateral promise to cut a further 1 million barrels per day of its production in February and March, while Russia by 65,000 bpd in each of the next two months.
As a result, oil prices skyrocketed to their highest level since February 2020, with early Wednesday WTI Crude trade above $ 50 a barrel as well Brent Crude above $ 54.
Russia’s push to ramp up its production, which it got from the OPEC + talks, even in uncompromisingly lower volumes, and Saudi Arabia’s big cut to support prices, show just how far the positions of the two leaders of the OPEC + alliance have grown. While this increasing divergence in supply confirmation policies could lead to deeper fractures within the group, it helped sustain the oil market.
“Saudi Arabia’s surprising cut is constructive for oil as it should ensure the market continues to pick up 20 stocks in the first quarter, despite concerns over demand with some new lockdowns or the announced expansion of existing lockdowns” said Warren Patterson and Wenyu Yao said on Wednesday.
By Tsvetana Paraskova for Oilprice.com
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