Fund buying in oil stalls after prices top $60: Kemp

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LONDON — Hedge funds added to their bullish positions in petroleum last week, but for the second week running, purchases were restricted to U.S. crude, with no buying elsewhere in the complex.

Traders anticipated ultra-low low temperatures would cause wells to freeze and other disruptions across the Texas oilfields, reducing supplies of West Texas Intermediate (WTI) and other local crudes.

Hedge funds and other money managers purchased the equivalent of 17 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 16 (https://tmsnrt.rs/3pM5Epk).

But virtually all the buying was in NYMEX and ICE WTI (+16 million barrels), building on similar WTI-focused purchases the previous week (+30 million barrels), anticipating freeze-offs.

There was no change in portfolio managers’ net positioning in Brent, U.S. gasoline and U.S. diesel, and only a trivial increase in European gasoil (+1 million barrels).

In NYMEX and ICE WTI, all the changes came from the reduction in existing bearish short positions (-16 million barrels), rather than the addition of new bullish long positions (in which there was no change).

In NYMEX WTI, short positions have fallen to the lowest level for more than a year. The short-selling cycle that began in May appears to have been completed, which will likely remove some upward pressure on prices.

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The lack of buying in other contracts implies hedge funds see price risks roughly in balance now both benchmark Brent and WTI prices are above $60 per barrel.

The probability of further price rises as a result of falling global oil inventories and a delayed production increase from OPEC+ is roughly offset by risks from profit-taking on the large number of existing long positions and an acceleration in U.S. shale drilling.

Related columns:

– Oil market rebalancing largely complete, except for jet fuel (Reuters, Feb. 19)

– Funds bought U.S. crude ahead of big freeze (Reuters, Feb. 15)

– Funds rotate from gasoline to diesel as epidemic lingers (Reuters, Feb. 8)

– Oil prices stall, hedge funds cautious buyers (Reuters, Feb. 1) (Editing by Barbara Lewis)