A crew man stands on the deck of the crude oil tanker ‘Devon’ as it sails through the Persian Gulf towards Kharq Island oil terminal to transport crude oil to export markets in the Persian Gulf, Iran. (Photographer: Ali Mohammadi/Bloomberg)

Investor Optimism on Global Oil Price Wanes

(Bloomberg) -- Over the past four months, investor optimism that global crude prices will rise has slumped by almost half.

Hedge funds’ net-bullish position on Brent crude, a measure of how positive money managers are that prices will gain, has plunged 49 percent since early April as trade wars cloud the picture for oil consumption. Despite a good week for the benchmark amid strikes at North Sea fields and declines in U.S. stockpiles, Brent remains about 6 percent down from this year’s peak in May.

“When you start to look at the different economies across the globe -- Europe, Asia, the emerging markets are definitely starting to hit some headwinds,” said Mark Watkins, who helps oversee $151 billion at U.S. Bank Wealth Management. Investors “are potentially getting a little bit more concerned about the rest of 2018, and probably going into 2019, that demand might be a little bit softer than previously had been.”

Investor Optimism on Global Oil Price Wanes

The exchange of tariffs between the U.S. and China is one factor that threatens to weaken global economic growth and hurt energy demand. Technical indicators also pointed to a potential decline in prices: During the period covered by the report, Brent’s 50-day moving average dropped below its 100-day one, an invitation to sell.

Hedge funds’ net-long position -- the difference between bets on higher prices and wagers on a drop -- in Brent was reduced to 324,431 contracts, ICE Futures Europe data show for the week ended August 21. That compares with a high for the year of 632,454 in the week ended April 10. Longs fell to the lowest in more than two years.

Investor Optimism on Global Oil Price Wanes

Saudi Arabia has formally put the initial public offering of its state oil company on hold while the producer, known as Aramco, focuses on buying a strategic stake in local petrochemical group Sabic for as much as $70 billion. While the Sabic deal will delay the IPO, it doesn’t mean it’s canceled, people familiar with the matter said, asking not to be identified because the information is private.

“It seems like worst case for Saudi Arabia: It’s off the table. Best case: It’s delayed even further,” said Brian Kessens, who helps manage $16 billion in energy assets at Tortoise. “Some people thought that if the Aramco IPO was going to go forward, that at least that would offer longer-term support for oil.”

OTHER POSITIONS:

  • The net-long position in West Texas Intermediate crude, the American benchmark, slid 4 percent to 327,742 futures and options, the lowest level in two months, according to the U.S. Commodity Futures Trading Commission. Longs and shorts both rose.
  • Money managers cut their net-long positions on benchmark U.S. gasoline and diesel both by about 11 percent, according to the CFTC.

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