Rising global oil supply and weaker-than-expected demand have made traders increasingly bearish on oil prices.
Hedge funds and other money managers accelerated their selling in the most traded petroleum futures contracts in the latest reporting week to September 3. Portfolio managers slashed their overall net long position—the difference between bullish and bearish bets—to the lowest level since exchanges began compiling such data in 2011.
The positioning in crude oil was already tilted to the bearish side in the previous reporting week to August 27, as traders had more than halved their bullish bets since early July.
The week to September 3 saw additional selling and a market rout in which oil prices dipped to their lowest level so far this year. The prospect of a return of Libyan oil exports—after a halt amid a political feud—and continued weak Chinese data and weaker outlooks of its economic growth have weighed on market sentiment.
As a result, the combined net long position on the two crude oil benchmarks, Brent and WTI, was slashed by 99,889 lots to just 139,242 lots in the week to September 3, according to data from exchanges cited by Bloomberg. This was the lowest bullish positioning in data from ICE Futures Europe and the CFTC since ICE began collecting such data in March 2011.
The net long position in the U.S. benchmark WTI Crude was slashed by 62,000 lots to 125,000 lots. The net long in Brent Crude was nearly halved to about 42,000 lots in the week to September 3.
“Including the three fuel products the net long slumped to 121k contracts, lowest recorded energy exposure since 2011 when ICE began collecting data,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.
Fears of slowing economies in China and the United States continued to drive speculators and hedge funds, as did concerns about oversupply with an OPEC+ production increase.
After the end of the reporting week to September 3, the OPEC+ group decided to delay the planned rise in output by two months from October to December.
However, this did little to reverse the bearish market sentiment, and prices slipped after the announcement at the end of last week.
Demand concerns trumped the alliance’s decision to delay adding 180,000 barrels per day (bpd) to supply.
Last week, WTI Crude saw its worst weekly performance since October 2023, with an 8% drop for the week. On Friday, WTI and Brent settled at their lowest levels since June 2023—at $67.67 and $71.06 per barrel, respectively.
Early Monday, prices rebounded by 1% following the selloff last week, partly due to forecasts that a weather system in the Gulf of Mexico could become a hurricane.
The early Monday rebound, however, is being overshadowed by concerns about the U.S. and Chinese economies.
Weak U.S. jobs data on Friday, with a lower number of jobs created than expected, rekindled fears of recession. Yet, the data paves the way for the Fed to cut interest rates next week.
A rate cut could boost demand for oil if economic growth picks up.
However, Chinese economic data continues to drag commodity prices down.
Major Wall Street banks, including Goldman Sachs, JP Morgan, Citi, and Bank of America, have already cut their forecasts of China’s GDP growth to below the official Chinese target of “about 5%” economic growth this year.
BofA was one of the latest to lower its estimate to 4.8% from 5%, saying earlier this month, “We find both the fiscal and monetary policy stance less accommodative than desired and insufficient to revive domestic demand growth.”
Improving Chinese demand would be vital in turning the current exceptionally bearish sentiment on oil, as would a rebound in the U.S. economy following the expected Fed rate cuts.
By Tsvetana Paraskova for Oilprice.com
