SUPERNEWS

Macro

Hedge Funds Grow Bearish on Crude, WTI Drops to $79/Bbl

Hedge Funds Ramp Up Bearish Bets on Crude Amid a 5% Price Drop, as OPEC+ Mulls Extending Output Cuts

By Barry Stearns

ᐧ

5/3, 17:01 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • Hedge funds increased bearish bets on US crude, with net long positions in WTI shrinking and short bets reaching a high since January.
  • Crude prices hit a 7-week low amid rising US stockpiles and potential Israel-Hamas ceasefire, alongside persistent high US inflation and economic softness.
  • Despite the bearish outlook on WTI, hedge funds' net long positions in Brent crude rose after a significant drop the previous week.

Oil Prices Tumble Amid Demand Fears

West Texas Intermediate (WTI) and Brent crude experienced their most significant weekly losses since February, with prices dropping over 5% to around $79 and below $84 per barrel, respectively. This decline was influenced by a combination of factors including a surprising increase in US crude stockpiles, reported by the Energy Information Administration as a 7.27 million barrel jump, the largest since early February. Additionally, easing geopolitical tensions and progress in cease-fire talks between Israel and Hamas contributed to the bearish sentiment. The market's outlook was further dampened by softening demand from China and the impact of sticky inflation in the US, prompting the Federal Reserve to maintain high interest rates.

Hedge Funds Increase Bearish Bets

In response to the falling crude prices, hedge funds have significantly increased their bearish positions. According to the US Commodities Futures Trading Commission, money managers' net long position in West Texas Intermediate shrank by 6,957 lots to 172,689 lots, marking the third consecutive week of declines. Short bets against crude surged by 9,705 lots to 78,141, reaching the highest level since January. This shift reflects growing skepticism among investors regarding the near-term prospects of the oil market.

OPEC+ Considers Extending Output Cuts

Amid the backdrop of declining prices and concerns over a global surplus, OPEC+ is reportedly considering extending its oil output cuts into the second half of the year. Nearly 90% of analysts surveyed by Bloomberg expect the alliance to continue its production restrictions in the upcoming June meeting to bolster prices. This strategy aims to counteract the potential for increased output from the US, Brazil, and Guyana, and to support the financial needs of member countries like Saudi Arabia, which requires oil prices near $100 a barrel to fund its ambitious projects.

Geopolitical and Economic Influences

The oil market is navigating through a complex landscape shaped by geopolitical developments, economic policies, and internal dynamics within OPEC+. The potential for a historic agreement between Washington and Riyadh, alongside the implications of Iran's attack on Israel, introduces volatility. Furthermore, the Federal Reserve's stance on interest rates amid high US inflation adds another layer of complexity. OPEC+ faces challenges in ensuring member compliance with production cuts, as seen with Iraq and Kazakhstan's compensatory adjustments for exceeding quotas. Russia's adaptation to Western sanctions, through strategic shipping practices and engaging with countries like India, highlights the resilience of sanctioned states.