Hedge funds hold fire as oil prices hit multi-year highs

LONDON: For all the bullish commentary around oil prices at the moment, hedge fund managers have made only minor changes to their overall position in petroleum futures and options in the last few weeks.

To the extent they have made any changes at all, fund managers have been reducing rather than adding to bullish positions since the middle of April.

Hedge funds and other money managers cut their net long position in the six most important petroleum futures and options contracts by 28 million barrels in the most recent week.

Fund managers have reduced their net long position for two consecutive weeks, to 1.376 billion barrels by May 1 from a recent peak of 1.411 billion barrels on April 17.

In a repeat of the week before, the liquidation last week was concentrated in crude oil, while portfolio managers increased their exposure to refined products slightly.

Funds cut their net long position in Brent (-21 million barrels) as well as NYMEX and ICE WTI (-12 million barrels).

By contrast, they increased their net position in US gasoline (+1 million barrels), US heating oil (+1 million barrels) and European gasoil (+2 million barrels).

The fundamental outlook remains fairly bullish with strong growth in oil consumption, continued output restraint by OPEC and a draw down in oil inventories below the five-year average.

Production and exports from Venezuela are declining and the United States is threatening to withdraw from the Iran nuclear agreement which could cut that country's exports in the coming months.

But hedge fund managers have already amassed a near-record bullish position in futures and options contracts linked to crude and fuels.

Positioning has become exceptionally stretched and lopsided across the petroleum complex, with hedge funds' long positions outnumbering short ones by a ratio of almost 12:1 (and as much as 17:1 in the case of Brent).

Fund managers show no inclination to add substantially to their existing longs, which may indicate they are fully invested for the time being.