* Chartbook: https://tmsnrt.rs/2NlpRTz
By John Kemp
LONDON, Aug 19 (Reuters) - Hedge funds cut their bullishpositions in petroleum last week for the second week running asanxiety about the slowing global economy and oil consumptiontrumped optimism over production restraint by OPEC and itsallies.
Hedge funds and other money managers reduced their net longposition in the six major petroleum futures and optionscontracts by 35 million barrels in the week to Aug. 13, havingcut it by 25 million barrels the previous week.
Portfolio managers last week sold Brent (37 millionbarrels), U.S. gasoline (15 million), U.S. heating oil (9million) and European gasoil (4 million) as the consumptionoutlook deteriorated.
By contrast, funds bought NYMEX and ICE WTI (30 millionbarrels) as new pipelines from the Permian Basin to the coastreduced congestion near the oilfields and supported localprices.
Overall, fund managers have cut their net long position inthe six major contracts to only 543 million barrels, down from arecent peak of 911 million in April and the lowest total sinceJune and before that February.
If “structural” long and short positions (minimum levels oflong and short positions, which never change) are excluded fromthe analysis, fund managers are running a dynamic net long ofonly 52 million barrels.
The hedge fund community now holds a basically neutralposition on petroleum prices, with the global economy replacingU.S. sanctions against Iran and Venezuela as the dominant themethis year.
Falling oil prices have prompted Saudi Arabia and its alliesin the OPEC+ group to extend their production restraint until atleast the end of the first quarter of 2020 (https://tmsnrt.rs/2NlpRTz).
Low prices are also forcing a slowdown in the drilling andcompletion of new wells in the U.S. shale fields, which shouldeventually result in slower production growth.
But consumption growth is decelerating even more quickly,with most major advanced economies and emerging markets noweither in recession or on the brink of it.
From a positioning perspective, the balance of risks hasprobably shifted to the upside, with plenty of room for hedgefund managers to add more bullish long positions and coverexisting bearish shorts.
From a fundamental perspective, however, the balance ofrisks remains tilted to the downside, with the global economylosing momentum and oil consumption growth slackening.
If positive news emerges about the economy, oil prices areprimed to rally, but such news is sparse and prices remain underpressure.
Related columns:
- Global motor manufacturing slump hits oil demand (Reuters,Aug. 13)
- Hedge funds polarised on oil by economy and supply threats(Reuters, Aug. 12)
- Oil’s post-crash bounce fades as buy-the-dip proves a bust(Reuters, Aug. 6)
- Hedge funds’ active positioning in crude oil (Reuters,July 27, 2017)(Editing by David Goodman)