Photographer: Andrey Rudakov / Bloomberg
Photographer: Andrey Rudakov / Bloomberg
Investors and oil companies are rushing back to the crude oil market.
Total holdings of Brent and WTI futures have risen to the highest level since May. It comes as banks from Goldman Sachs Group Inc. to JPMorgan Chase & Co. see the market outlook brightening and some major hedge funds talking about commodities entering a price super cycle.
The sharp rise in outstanding interest marks a reversal from the aftermath of the sub-zero oil crash, a defeat that sparked a collapse in global crude oil production and a decline in consumption. Trade fell last year as US crude oil production fell and consumers such as airlines pulled out of the hedging space. The low point was November. Since then, things have picked up, with a strong recovery this year.
“People are rethinking the investment dossier for the commodities asset class,” said Harry Tchilinguirian, oil strategist at BNP Paribas. “Open interest in oil is on the rise again as macro-oriented funds consider the case for commodities.”
JPMorgan is one of the banks that says it prefers commodities as a hedge against inflationary pressures, while Bank of America Corp. thinks that reflationary pressure is already helping to push oil prices up.
Recovery
The rally has also led to an upsurge in producer hedging, with the WTI approaching nearly $ 50 a barrel by 2022. Brent is already above that mark for the same period. Much of the shale oil production is profitable at its current level, said Fatih Birol, director of the International Energy Agency.
In addition to the recovery in activity, there is also a revival in the number of bullish market participants. Last week, there were 163 money managers with long positions in Brent and WTI, the highest number since February. That’s up from a low of 94 in March.
The shift is good news for CME Group Inc. and the Intercontinental Exchange Inc., which own the largest oil exchanges in the world.
“Our WTI markets continue to reflect broad participation around the world as customers manage their global price risks,” said Peter Keavey, director of energy products at CME Group. “WTI remains the market’s choice to manage crude oil exposure.”
Crude oil has had more reasons to be supported so far this year. A huge index On a rebound last week, about $ 9 billion was expected to flow into the market last week as prices soared to a 10-month high. In addition, the dollar’s weakness is sparking renewed talk of one raw materials super cycle. Both JPMorgan and Goldman Sachs have advised increasing exposure to the sector in recent days.
There is, of course, “plenty of hedging by producers and some of it will be exchanged in some way,” said Paul Horsnell, head of commodities research at Standard Chartered Plc.
In addition, short positions of swap dealers – a sign that banks are managing the hedges they sold to producers – rose to their level highest level since April last week.
And with forecasts of a global economic recovery this year, there is potentially more inflow for oil. The value of Brent and WTI’s outstanding interest is still about a third lower than a peak of $ 408 billion in 2018, but the The World Bank expects a 4% growth in the world economy this year and an increase of 7.9% in China, the world’s largest oil importer.
“Brent is the global benchmark for crude oil pricing, so as forecasts for global economic activity improve, we see strong demand for trade and risk management through the Brent futures market,” said Jeff Barbuto, global head of oil markets at ICE.