Overall, fund managers bought the equivalent of 24 million barrels of oil contracts in the week to July 13, according to estimates by John Kemp, Market Analyst at Reuters, based on trade data.
Although the last week of publication saw net purchases of oil contracts, two-thirds of the purchases focused on buying back previously opened short positions, and only one-third on opening new long positions, according to calculations by Kemp.
Fund managers have thus continued to take profits in the oil complex, after oil prices hit their highest level in years, with Highest WTI crude since November 2014, immediately after OPEC + failed on July 5 to agree on its future oil supply policy.
Oil prices retreated from these highs the very next day, also because hedge funds started to take profits as market positioning began to look too bullish.
At the same time, market participants continued to believe that OPEC + would eventually come to a compromise (as he did last Sunday) and add more supply, while concerns about the outbreak of the Delta variant of COVID in many countries also killed some of the bullish sentiment.
Related: The 2 Best Stocks To Hold As Oil Prices Explode Profit-taking, which began with the week to July 6, continued the following week through July 13, amid a volatile market and general price decline as OPEC + perfected the art of “consensus building” as the Saudi minister Energy, Prince Abdulaziz bin Salman, described the two-week negotiations. .
The market was ripe for profit taking after oil prices were too high, with the US benchmark hitting $ 75 a barrel ahead of the first OPEC + meeting on July 1. Too many traders and speculators expected prices to continue rising amid strong demand and a cautious OPEC + approach to release more supply. When long positions became overloaded, some fund managers chose to sell part of their existing long positions and / or liquidate previously opened short positions.
The drop in oil prices in recent days was, to some extent, driven by the profit-taking activity of hedge funds, as well as OPEC + which is now definitely adding more oil at a time when concerns about the Delta variant makes market players nervous. on the tendency for oil demand to recover.
Monday, the day after OPEC + announced an agreement on oil supply and the oil pact until the end of 2022, Oil prices collapsed by 8%, the biggest dive of a day since September 2020. Brent slipped below $ 70 a barrel while WTI’s decline came to a halt at $ 66 a barrel.
Closing long and short positions contributed to the downside, in addition to the prospect of an increase in supply each month, while the Delta variant raises concerns about global fuel demand.
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Analysts also point out that during a summer lull in the markets, amid sub-par liquidity, volatility is bound to be higher, with further bullish or bearish affecting an asset class more than it is. would have done without the holidays. period.
Nonetheless, analysts view the OPEC + deal as constructive for the market, as it reassured participants that last year’s brief price war, which contributed to the historic US oil crash, plunging into negative territory.
Meanwhile, fund managers used the two-week OPEC + uncertainty to take profits after oil prices hit multi-year highs.
By Tsvetana Paraskova for OilUSD
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