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October - "Short Selling In Oil Returns"

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Short Selling In Oil Returns

By Tsvetana Paraskova - Oct 05, 2020, 3:30 PM CDT

Money managers resumed selling the most traded petroleum futures contracts last week, reversing more than half of the previous week’s buying, as the lasting impact of the coronavirus renewed concerns about global oil demand.

According to the latest Commitment of Traders (COT) report with data through September 29, hedge funds and other portfolio managers were net sellers of the equivalent of 29 million barrels in the six most important contracts, with the WTI Crude sell-off at the equivalent of 24 million barrels, according to COT data compiled by Reuters market analyst John Kemp.

In the previous week, a short-covering run led to a mini price rally, which was snapped last week with fresh concerns about the global economic recovery.


According to Kemp’s calculations, hedge funds were net sellers of oil in five of the past six weeks, as sell-offs accelerated after the middle of August.

“Sellers returned to crude oil as the short-covering rally only managed to last for one week before growing fears about a sustained recovery again took hold. While only seeing a modest price drop of 1.4% on the week, hedge funds cut their net-longs by 6% to 402k lots. WTI crude oil saw the biggest reduction on a combination of long liquidation and fresh short selling,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Monday, commenting on the report.

After the period covered by the latest COT report, oil prices crashed on Thursday after data showed that OPEC raised production and exports in September compared to August. Prices further slid on Friday, after U.S. President Donald Trump said that both he and the First Lady had tested positive for Covid-19.

Oil prices rebounded on Monday by more than 4 percent at 10:00 a.m. EDT, with Brent Crude back above $40 a barrel, following news from doctors that President Trump’s health is improving.

“The current range bound trading behaviour highlights a market that remains torn between short-term weakness against the expectations for a recovery, the timing of which, however, continues to be delayed,” John Hardy, Head of FX Strategy at Saxo Bank, said on Monday.

By Tsvetana Paraskova for

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via Zero Hedge

Commodity Tracker: 4 charts to watch this week

This week’s Commodity Tracker kicks off with a look at easing stocks of refined oil products at the Middle East’s biggest storage hub of Fujairah, as well as the prospects for gas supply in Europe over winter amid bulging storages. The return of 2.7 GW of capacity to the German and Dutch power markets goes some way to easing fears of shortages with French nuclear capacity low, and European steel plants are eyeing up improved margins for 2021.


1. Fujairah oil stocks drop to eight-month low as market rebalances


What’s happening? Stockpiles of refined oil products at Fujairah, the Middle East’s biggest storage hub, have hit an eight-month low, with shipments of naphtha and gasoil picking up, supporting signs that the global oil market is balancing as OPEC+ output cuts offset pandemic-hit demand. Total stockpiles stood at 20.961 million barrels as of September 28, down 2.2% from a week earlier and the lowest since January 13, according to data from the Fujairah Oil Industry Zone released September 30. Stockpiles have now dropped for five consecutive weeks, the longest losing streak since the five weeks ended July 1, 2019. The record losing streak was six weeks in a row in 2017.

What’s next? Markets continue to watch global crude and product stock movements for clues to the pace of economic recovery from the pandemic, particularly as a spike in coronavirus infections to new highs globally fuels concerns over a second wave of lockdowns.


2. Europe well placed for gas supplies over winter…


What’s happening? With EU gas storages at around 95% full, Europe is again well placed to manage the upcoming winter from a security of supply perspective. Stocks have been built to almost capacity for the second consecutive year, the difference this time being that the risk of disruption to Russian imports via Ukraine is absent.

What’s next? With stocks almost full at the start of the new gas year, there is limited scope for further EU storage injections in the event of a warm October, and injection season in Ukraine – which has acted this summer as an “overflow” for European storage – also seems to have effectively finished. A ramp-up in gas supplies to Europe and warm weather could put pressure on the market.

3. …as gas plants emerge from mothballs



What’s happening? Two gas-fired power stations with a combined 2.7 GW of capacity returned to the German and Dutch power markets at the start of October after years in the wilderness. Back on the system are Uniper’s Irsching gas plant in Bavaria and RWE’s Claus C plant in the Netherlands. Cheap gas and a rising carbon price are behind the power station returns, after years when the assets were on the verge of permanent closure due to cheap coal-fired generation. The boot is on the other foot now CO2 prices are back over Eur25/mt.

What’s next? It remains to be seen whether gas’ ascendancy over coal will be maintained over the winter. From very low levels over the summer, European gas prices have stabilized around the Eur12/MWh mark, pulling gas plant margins down and close to parity with comparable coal plant margins. Meanwhile, the power station returns should ease fears of capacity shortages due to low French nuclear availability. There is enough fossil plant around to fill any thermal gap caused by a nuclear shortfall, but this would be at an economic and carbon cost.


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