Hedge Funds Throw Record Bets on Rising Gasoline as Summer Nears

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(Bloomberg) -- Money managers are going all in on gasoline.

Hedge funds boosted bets on rising gasoline prices to the highest on record. That’s as futures for the motor fuel jumped to the highest since August amid robust demand and inventories hovering near their lowest since January.

“We are heading into the driving season and the market has tightened rather nicely,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People are gambling that the strong economy will yield a very strong driving season and that may stress out the refining sector.”

Global demand proves solid, with Goldman Sachs Group Inc. saying oil’s rally to three-year highs will spur fuel demand as reserves of Middle East petrodollars are reinvested overseas and stimulate the global economy. Gasoline products supplied, a measure of demand, hit a record-high earlier this month, according to U.S. government data.

Money managers increased their net-long position on benchmark U.S. gasoline by 14 percent to 111,397 futures and options, during the week ended April 24, according to the U.S. Commodity Futures Trading Commission. That’s the highest on record in data going back to 2006. Longs climbed 14 percent, while shorts jumped 30 percent.

U.S. crude exports have jumped above 2 million barrels a day to a record high and gasoline exports also climbed, according to Energy Information Administration data.

Demand Narrative

“There is a compelling demand narrative,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. The jump in crude exports to above 2 million barrels a day “is notable.”

As for crude prices, West Texas Intermediate oil is sitting just above $68 a barrel as geopolitical tensions swirl, with focus on whether U.S. President Donald Trump will impose sanctions on Iran come May 12, which could limit the producer’s output and boost crude prices.

Hedge funds reduced their WTI net-long position -- the difference between bets on a price increase and wagers on a drop -- by 2.1 percent to 433,118 futures and options. Longs fell 1.5 percent and shorts increased 7.2 percent.

“The fact that you would see some consolidation in the long positions makes sense,” said Tamar Essner, an analyst at Nasdaq Inc. in New York. “But the fact that you didn’t see too much also makes sense, as no one wants to be short going into the May 12 deadline on Iran.”

OTHER POSITIONS:

  • The Brent net-long position slipped 1.2 percent to 612,486 contracts, weekly ICE Futures Europe data showed.
  • The net-bullish position on diesel rose 12 percent.

©2018 Bloomberg L.P.

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