Oil positions are boosted by bargain-hunting hedge funds | Paragon Alpha

Oil positions are boosted by bargain-hunting hedge funds

By Matea Gucec

For the second week in a row, portfolio investors bought oil futures and options as at least some fund managers came to the conclusion that previous sell-off and recession forecasts were exaggerated.

On July 19, hedge funds and other money managers bought the equivalent of 31 million barrels in the six most significant petroleum futures and options contracts.

Initiating new bullish long bets (+26 million barrels) was strongly preferred to the closing out of bearish short positions throughout the buying period (-5 million).

With purchases of both Brent (+15 million barrels) and NYMEX and ICE WTI (+15 million), it was concentrated on crude rather than products.

Only minor changes were made for American gasoline (+2 million barrels), American diesel (+1 million), and European gas oil (-3 million).

Even after the purchases, the net position over all six contracts is only 485 million barrels, which is a small amount (28th percentile for all weeks since 2013). Particularly low at just 381 million barrels, crude positions are (21st percentile).

The risk-reward ratio has improved as a result of the relatively negative stance and the price retreat that began after mid-June, encouraging at least some investors to re-enter the market in an effort to profit from any market recovery.


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