LONDON, June 19 (Reuters) - Portfolio investors are rotating positions from crude oil to middle distillates – anticipating that the low level of distillate inventories will keep prices relatively firm even if the global economy and petroleum consumption slow.

Hedge funds and other money managers sold the equivalent of 21 million barrels of crude oil options and futures but purchased 18 million barrels of products, including 14 million of distillates, over the week ending on June 13.

The biggest rotation has been from U.S. crude to European gas oil, reflecting the rise in crude inventories in the United States while stocks of distillates, used heavily in Europe, remain well below normal around the world.

Chartbook: Oil and gas positions

Fund positions in NYMEX and ICE WTI have been reduced in seven of the last eight weeks by a total of 126 million barrels since April 18.

The WTI position is now just 73 million contracts (2nd percentile for all weeks since 2013) with long positions outnumbering shorts by 1.49:1 (3rd percentile).

At the same time, fund managers have boosted positions in European gas oil in five of the last six weeks by a total of 24 million barrels since May 2.

The most recent weekly increase in gas oil positions was the largest for almost two years since August 2021 and before that November 2020.

Funds had already built a fairly sizeable position in U.S. diesel and now bullishness is starting to spill over into European gas oil.

Crude and distillate consumption are both strongly correlated with the business cycle, but low distillate stocks will provide support in the event the global economic slowdown intensifies or an extra boost if recession is averted.

U.S. commercial crude oil inventories were 16 million barrels (+4% or +0.28 standard deviations) above the prior ten-year seasonal average on June 9.

By contrast, U.S. distillate stocks were 20 million barrels (-15% or -1.06 standard deviations) below the ten-year seasonal average.


Investors are still struggling to become more bullish about U.S. gas prices given the persistently high level of inventories, which have shown no sign of being reduced to more normal levels.

Hedge funds and other money managers purchased the equivalent of 73 billion cubic feet of gas futures and options in the seven days to June 13, after selling 179 billion cubic feet the previous week.

The hedge fund community held a net short position of 6 billion cubic feet (32nd percentile for all weeks since 2010).

Working gas stocks were 279 billion cubic feet (+12% or +0.69 standard deviations) above the prior ten-year seasonal average on June 9.

The inventory surplus has changed very little since early March despite ultra-low prices encouraging gas-fired power producers to run for more hours and the resumption of exports from Freeport LNG.

Related columns:

- Global distillate stocks low despite industrial slowdown (June 13, 2023)

- Oil investors ignore Saudi production cut (June 12, 2023)

- U.S. gas inventories start summer well above normal (June 9, 2023)

- Saudi Arabia’s “lollipop” has yet to sweeten oil prices (June 6, 2023)

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

Editing by Kirsten Donovan

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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.

Thomson Reuters

John Kemp is a senior market analyst specializing in oil and energy systems. Before joining Reuters in 2008, he was a trading analyst at Sempra Commodities, now part of JPMorgan, and an economic analyst at Oxford Analytica. His interests include all aspects of energy technology, history, diplomacy, derivative markets, risk management, policy and transitions.

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