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Column: Bargain-hunting hedge funds boost oil positions

An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022. cnsphoto via REUTERS

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LONDON, July 25 (Reuters) – Portfolio investors purchased oil futures and options for the second week running as at least some fund managers concluded that expectations of a recession and a recent sell-off were overdone.

Hedge funds and other money managers purchased the equivalent of 31 million barrels in the six most important petroleum futures and options contracts in the week ending on July 19.

(Chartbook: https://tmsnrt.rs/3J1l5p1)

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Buying was heavily weighted towards the initiation of new bullish long positions (+26 million barrels) rather than liquidation of existing bearish shorts (-5 million).

It was focused on crude rather than products with purchases of both Brent (+15 million barrels) and NYMEX and ICE WTI (+15 million).

There were only minor adjustments in U.S. gasoline (+2 million barrels), U.S. diesel (+1 million) and European gas oil (-3 million).

Even after the buying, the net position across all six contracts is relatively low at just 485 million barrels (28th percentile for all weeks since 2013). Crude positions are especially low at just 381 million barrels (21st percentile).

Relatively bearish positioning, combined with the retreat in prices that set in after the middle of June, has improved the risk-reward ratio and encouraged at least some investors to re-enter the market to profit from any rebound.

Related columns:

– Oil positions steady after heavy hedge fund selling ends (Reuters, July 18) read more

– Oil dumped by hedge funds on heightened recession risk (Reuters, July 11) read more

– Oil bulls retreat as economic outlook darkens (Reuters, July 4) read more

– Funds sell oil at fastest rate for 15 weeks as economic outlook worsens (Reuters, June 27) read more

John Kemp is a Reuters market analyst. The views expressed are his own

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Editing by Barbara Lewis

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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