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Hedge funds axe their bullish bets on crude oil at the fastest pace in 6 months, and OPEC sees demand taking even longer to recover


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Hedge funds axe their bullish bets on crude oil at the fastest pace in 6 months, and OPEC sees demand taking even longer to recover

NurPhoto/Getty Hedge funds have cut their bullish bets on crude oil in the week to September 8 at the fastest pace since mid-March.Investors sold 171 million barrels’ worth of crude and refined products, reflecting stalling demand, with Brent accounting for 67 million barrels and West Texas Intermediate for 57 million barrels.The Organization of Petroleum Exporting…

Hedge funds axe their bullish bets on crude oil at the fastest pace in 6 months, and OPEC sees demand taking even longer to recover
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NurPhoto/Getty

  • Hedge funds have cut their bullish bets on crude oil in the week to September 8 at the fastest pace since mid-March.
  • Investors sold 171 million barrels’ worth of crude and refined products, reflecting stalling demand, with Brent accounting for 67 million barrels and West Texas Intermediate for 57 million barrels.
  • The Organization of Petroleum Exporting Countries slashed its forecast for global oil demand by 400,000 barrels a day to an average of 90 million barrels per day in 2020.
  • A second wave of COVID-19 cases and scattered lockdowns have once again darkened the prospects for demand, making investors slash their bullish bets to their lowest level since mid-April.
  • Visit Business Insider’s homepage for more stories.

Hedge funds are scrapping their bullish bets on crude oil in a sign that earlier optimism on energy is dissipating once again amid the COVID-19 pandemic.

Money managers cut their bullish bets on Brent crude last week at the fastest pace in six months. According to data from the Commodity Futures Trading Commission, the net position held by money managers in the futures market fell by the equivalent of 67.31 million barrels of oil, marking a 36% drop, the largest weekly fall since the depths of the coronavirus crisis in mid-March.

According to Reuters commodity and energy analyst John Kemp, funds sold the equivalent of a combined 171 million barrels in crude and refined products in the latest week, the fastest pace in over two years, with West Texas Intermediate down by 57 million barrels and US gasoline down by 12 million barrels. 

Once lockdowns around the world began to ease in April and May, fund managers quickly loaded up on oil futures and options, betting on a sustained recovery in demand and price, bringing net managed money holdings to pre-coronavirus levels. 

But a second wave of COVID-19 cases and scattered lockdowns have once again darkened the prospects for demand, prompting the Organization of the Petroleum Exporting Countries to cut its expectations for global consumption and for demand for its own crude oil. 

OPEC in its monthly oil market cut its forecast for 2020 demand by 400,000 barrels a day from its previous estimate to reflect a contraction of 9.5 million barrels per day. For 2021, OPEC expects demand growth of 6.6 million barrels per day, marking a 400,000-barrel drop from last month.

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Investors in Brent crude futures are now holding their smallest net long position since mid-April.

“The recovery in global energy demand continues to show signs of stalling. Many countries around the

world, especially in Europe and Asia, are now in the midst of a second wave of coronavirus,” Ole Hansen, head of commodities strategy at Saxo Bank, said.

“As a result, the recovery in fuel demand has stalled with work-from-home and the lack of leisure and business travel

– both signs that it will take longer than anticipated to get back to a pre-virus levels of energy demand,” he added.

The COVID-19 pandemic has eroded demand for transportation fuels like gasoline and jet fuel, hitting overall energy demand.

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