Money managers have started 2021 with optimism that oil prices will benefit from an increase in economic activity as vaccines are launched. Hedge funds and other portfolio managers held the most optimistic overall position at the end of December 2020 in the most traded futures and oil options contracts in early 2020. Fund managers held a long net overall position – the difference between bullish and bearish bets – the equivalent of 741 million barrels of oil equivalent in the six major oil contracts as of 29 December, according to exchange data Reuters columnist John Kemp.
This long net position was the largest net bullish bet on oil since January 2020, just before prices began to plummet, while the pandemic threw oil and all other markets in February, March and April.
The optimistic positioning of hedge funds at the beginning of 2021 was not without reason. The market in general, as well as many analysts, believe that oil will grow this year as global oil demand recovers most (but not all) of its losses by 2020. Vaccine launches are expected to support economic activity and travel to the end of this year, while the stimulus packages are going to stimulate the big economies to come back from last year’s recessions.
As a result, hedge funds started in 2021 with a long record net position in all commodities, according to Saxo Bank.
About: US oil executives cautiously optimistic around 2021
“Overall, the biggest bets are on crude oil, with 614,000 long combined lots in WTI and Brent representing a face value of $ 30 billion,” said Ole Hansen, head of commodity strategy at Saxo Bank, in -an analysis of the latest commitment of traders reports with data for the week to December 29.
Crude oil’s long net position – one of the two largest commodity contracts in terms of exposure, along with gold – is still well below its peak at 1.1 million lots held in March 2018, says Hansen.
However, alcohol betting on oil has risen dramatically from March and April lows, with most long-term positioning and short coverage taking place in late 2020. Pharmaceutical companies began announcing vaccine candidates in November – vaccine candidates who they obtained regulatory approvals in a few weeks. Vaccinations against front-line workers and vulnerable people have started in many countries and in a few weeks. oil vaccine-led rally the market and speculators hoped that with the vaccines available in 2021, savings would recover faster and demand for oil would increase.
However, the ratio between compound and oil declining bets became the highest since January last year, setting the stage for a short-term withdrawal of compounding bets from a positioning perspective.
The short-term outlook for oil demand is not at all optimistic. Britain came in this week the third blockade at national level since the start of the pandemic, people under the command to stay at home until mid-February, except for work that cannot be done at home, for essential shopping or for an hour of outdoor exercise. Germany and Italy, two other major European economies, have also extended their blockades.
However, the oil supply side received a major blow on Tuesday Saudi Arabia ‘s unilateral commitment to reduce another million bpd of production in February and March, while Russia was allowed to increase production to 65,000 bpd in each of the next two months.
As a result, oil prices rose early on Wednesday to a peak in February 2020, with WTI Crude trading over $ 50 a barrel and Brent Crude over 54 USD.
Russia’s insistence on raising production, which it obtained from OPEC + talks even in lower compromise volumes, and Saudi Arabia’s major cut to support prices show how far the two alliance leaders’ positions have risen. OPEC +. While this growing divergence in supply-side policies could mean deeper divisions within the group, it has helped support the oil market.
“The sharp surprise in Saudi Arabia is constructive for oil, as it should ensure that the market continues to draw stocks beyond 1Q20, despite concerns about demand, a series of new blockages or the extension of existing blockages, announced,” ING strategies Warren Patterson and Wenyu Yao said Wednesday.
By Tsvetana Paraskova for Oilprice.com
More top readings from Oilprice.com: