Portfolio investors sold off oil in a big way for the third straight week as investor concerns about potential disruptions to crude flows due to Russian export limits receded.
Hedge funds and other fund managers sold the equivalent of 42 million barrels of the six most important oil-related futures and options contracts in the seven days ending Nov. 29.
The sell-off in the last three weeks totaled 190 million barrels, surpassing the previous six weeks' buying volume of 169 million barrels. Fund managers have cut their NYMEX crude oil positions for three consecutive weeks.
Analysis of the data shows that the decline in positions came mainly from fund managers cutting long exposure, rather than covering shorts. In the latest week, selling was again concentrated in crude oil (4 million barrels), particularly Brent crude (39 million barrels), with little change in other contracts.
Brent crude is the contract most directly affected by Russian crude exports due to the price cap restrictions announced by the US, EU and their allies on December 2. Fund managers last week reduced their net position in Brent crude to just 99 million barrels from 238 million barrels on Nov. 8. The ratio of long to short Brent crude oil positions was just 2.17:1, down from 6.74:1 at the end of October. this is the lowest level since November 2020.
Concerns that price caps will reduce global crude supplies appear to have triggered a wave of buying in the spot and futures markets throughout late September and early October. Precautionary buying pushed near-month Brent crude futures from $84 a barrel on Sept. 26 to a high of nearly $99 on Nov. 4. It also helped the futures market maintain a spot premium for up to six months.
But as it became clear that this cap would be set at a relatively high level and executed in a more lenient manner, this buying behavior reversed, causing prices and spreads to fall sharply.
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