Portfolio investors sold petroleum last week as a slowing economy in China and Europe and a massive release of strategic stocks by the United States outweighed concerns about the disruption of exports from Russia.
Hedge funds and other money managers sold the equivalent of 11 million barrels in the six most important petroleum-related futures and options contracts in the week to April 5.
Funds have been sellers in four of the last five weeks reducing their overall net long position by the equivalent of 188 million barrels since the start of March, according to exchange and regulatory records.
The most recent week saw light sales of Brent (-4 million barrels), NYMEX and ICE WTI (-3 million), U.S. gasoline (-2 million) and European gas oil (-4 million) with small buying in U.S. diesel (+1 million).
Bullish long positions were reduced by 8 million barrels while the number of bearish short positions was increased by 4 million barrels.
Fund managers have maintained an overall bullish bias, with long positions outnumbering shorts by a ratio of 4.64:1, in the 59th percentile for all weeks since the start of 2013.
But positioning overall has become more cautious with a combined net long position of 542 million barrels (36th percentile) down from 761 million (80th percentile) in mid-January.
The total number of option futures positions held by hedge funds and other traders has fallen for seven consecutive weeks by a total of 1,142 million barrels (18%).
Increased uncertainty, heightened volatility and sharply raised margin requirements have made it much more expensive and risky to hold existing positions or initiate new ones.
On the supply side, the risk of a disruption to Russian crude and products exports has been offset for now by the promise of a massive release of 240 million barrels from strategic stocks held by the United States and its allies.
On the demand side, there are increasing downside risks from the worsening coronavirus outbreak in Shanghai and other parts of China and evidence of a business cycle slowdown in North America and Europe.
As a result, the hedge fund community has become mildly bearish about the outlook for crude while there is still slightly more bullishness about middle distillates such as diesel, jet fuel and European gas oil.
Even in middle distillates, funds have been sellers in eight of the last nine weeks, reducing their net position by a total of 72 million barrels (50%).
For most money managers, the projected petroleum production-consumption balance has become less tight as the economy struggles, while shortages of diesel and jet fuel are expected to hold crack spreads a little firmer.
John Kemp is a Reuters market analyst. The views expressed are his own.