Oil Investors Rally Behind the Rally With Record Bets on Rise
Hedge funds have never been so invested in the global oil rebound.
Their bets that Brent crude futures will climb reached a new high as growing tensions across the Middle East are putting almost half of the world’s supply at risk. The escalation of strife in the region sent the key crude benchmark to its highest in more than three years, while volatility surged.
“Clearly, emotionally, people view markets as tighter because they are actually reacting so strongly to these tensions,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. “There is money to be made here again” amid heightened volatility, she said.
After fears that a U.S.-China trade spat could hurt demand fizzled, heated geopolitical stress kept investors on their toes. U.S. President Donald Trump warned America was preparing to strike Syria, and top oil exporter Saudi Arabia intercepted ballistic missiles fired by Yemeni rebels. OPEC Secretary-General Mohammad Barkindo said he was concerned about the “geopolitical premium re-emerging in the price” of oil.
“It’s showing there is life in general in this sector that’s worth coming into,” Petersen said. “You combine that with the fact that, yes there is volatility, but also the outlook is generally bullish, it makes the sector more attractive for some long positioning and for some risk-taking.”
BETS ON BRENT
- Net-long position reached 632,454 contracts in week ended April 10, most in ICE Futures Europe data going back to January 2011.
- Longs rose 3.5 percent to 665,130
- Shorts rose 5.9 percent to 32,676
Meanwhile in the U.S., investors weren’t so bullish on West Texas Intermediate crude because the American benchmark doesn’t offer the same exposure to geopolitics.
“If you’re running a hedge fund, part of your job is to protect a portfolio from outlier events, and war is one of those,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “If you’re running protection for somebody why buy WTI, which is really the secondary price for a global event.”
A look at supply levels on the global stage, on the other hand, is giving the bulls something else to cheer about. The International Energy Agency said in a report Friday that OPEC is on the verge of “mission accomplished” in its work to clear the oil glut.
The producer group’s compliance to its historic deal to reduce output jumped to a record 164 percent in March, and Saudi Arabia’s Energy Minister Khalid Al-Falih said members remained committed to maintaining market stability. Even Goldman Sachs Group Inc. said the case for owning commodities has rarely been stronger.
Prices have risen amid “the idea that the market is rebalancing, that demand continues to be quite firm and let’s not forget the quite hefty decline in OPEC output,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto.
- WTI net-long position fell by 1.6 percent to 417,650 contracts, according to the U.S. Commodity Futures Trading Commission. Longs dropped 1.7 percent, while shorts also declined.
- In the fuel market, money managers reduced their net-long position on benchmark U.S. gasoline by 4.6 percent, while the net-bullish position on diesel fell 2.7 percent.