LONDON – Investors rallied sharply on petroleum prices last week in response to growing European Union sanctions on Russian exports that could exacerbate global oil shortages.
Hedge funds and other money managers bought 56 million barrels of equivalent in six most important petroleum-related futures and alternative deals during the week of May 17 (https://tmsnrt.rs/38KmVwL).
The fund bought petroleum at the fastest rate for more than four months, according to records released by ICE Future Europe and the US Commodity Futures Trading Commission.
Most of the buying came from the introduction of the new bullish long position (+40 million) instead of closing the old bearish shorts (-15 million).
Almost all purchases were concentrated in crude (+55 million barrels), including large purchases by Brent (+24 million) and NYMEX and ICE WTI (+31 million). WTI purchases were the fastest since November 2020.
In terms of commodities, US petrol (+4 million) and US diesel (+2 million) were small purchases, but were offset by lower sales of European gas oil (-5 million).
Hedge funds expect that EU sanctions will significantly reduce Russia’s exports and worsen the global oil supply deficit, with the main impact being felt on crude and partially refined heavy fuel oil.
However, the velocity does not extend to the fuel; Either because fund managers believe that products such as distillates will be exempt from sanctions or that the effects of any sanctions will be offset by a deteriorating economic outlook.
Fund managers are significantly less enthusiastic about Europe than the United States, which probably reflects Europe’s greater exposure to the war in Ukraine and the rapid decline of the region’s economy.
– Oil hedge fund caught between embargo and recession (Reuters, May 16)
– Hedge funds adjust to new oil norms (Reuters, May 9)
– US distillate stocks fall sharply (Reuters, May 5)
– Global manufacturers lose momentum as inflation worsens (Reuters, May 3)
– Oil prices crippled amid Russian sanctions and Chinese lockdown (Reuters, April 25)
John Kemp is a Reuters market analyst. Published opinions are his own (Edited by David Goodman)