LONDON, Dec 11 (Reuters) – Hedge fund managers have started to take profits from the big rise in crude oil and refined products prices since June now the rally has lost momentum and inventories are showing signs of stabilising.
Portfolio managers cut their combined net long position in the five major futures and options contracts linked to petroleum prices by the equivalent of 34 million barrels in the week to Dec. 5.
Net long positions were reduced to 1,120 million barrels, from the previous week’s record of 1,155 million, according to an analysis of position data published by regulators and exchanges.
The biggest reductions in bullish positions came in U.S. heating oil and gasoline, where positions had reached record levels in recent weeks.
Net long positions in heating oil fell by 13 million barrels to 61 million barrels, from a record 75 million the previous week. Long positions were cut by 9 million barrels while short positions were boosted by 4 million barrels.
Net long positions in gasoline fell by 8 million barrels, having declined by 3 million barrels and 7 million in the two previous weeks, and were down to just 107 million barrels on Dec. 5 from a record 125 million barrels on Nov. 14.
Profit-taking by the holders of bullish long positions rather than short-selling by hedge funds establishing fresh shorts accounted for most of the reduction in net length.
The same phenomenon was evident in European gasoil, which is not included in the analysis of the five major petroleum contracts.
Net long positions in gasoil fell by more than 1.1 million tonnes to 14.7 million tonnes, with long positions down 0.9 million tonnes while short positions rose by 0.2 million tonnes.
On the crude side, the pattern was different. Net long positions declined slightly in both Brent and WTI but the fall was caused by an increase in short positioning rather than profit-taking among the longs.
Gasoline and distillate stocks have stabilised in the past fortnight as a result of very heavy crude processing in the United States and elsewhere, which has dispelled some of the earlier concerns about falling inventories.
Gasoline and distillate prices led the rally in crude between June and the middle of November and now profit-taking on the products side has caused the crude rally to stall.
But even with the recent profit-taking hedge fund positioning in crude and products remains very lopsided.
Portfolio managers have more than seven bullish long positions for every bearish short position in the petroleum complex.
Positioning in parts of the complex is even more stretched, with the ratio of long to short positions in Brent at more than 11:1.
Position risk remains firmly tilted towards the downside even if supply-demand-inventories fundamentals are tilted to the upside.
Crude prices seem likely to remain range-bound until that tension is resolved, one way or the other.