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LONDON, Aug 12 (Reuters) – Investors cut their petroleum positions to the lowest level for at least a decade early last week, part of a broad-based retreat from risk amid rising concerns over a global economic slowdown.
Hedge funds and other money managers sold the equivalent of 110 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Aug. 6.
Fund managers had been net sellers in each of the five most recent weeks, reducing their combined position by a total of 372 million barrels since the start of July.
By Aug. 6, the combined position had been slashed to 152 million barrels, the lowest in records dating back to 2013.
The most recent week saw sales across the board in Brent (-53 million barrels), NYMEX and ICE WTI -31 million), European gas oil (-13 million), U.S. diesel (-9 million) and U.S. gasoline (-5 million).
Position changes were fairly evenly divided between the liquidation of former bullish long positions (-60 million) and initiation of fresh bearish shorts (+50 million).
The sell-off was the fastest since January and February 2020, when traders were bracing for the spread of the coronavirus epidemic from China to the rest of the world. As a result, fund managers held a record low position in Brent, and near-record low positions in the rest of the petroleum complex.
The speed, scale and breadth of selling was consistent with a broad risk-off move across asset markets as well as concerns about a slowdown in the major economies and deterioration in the outlook for oil consumption.
In recent weeks, oil traders have focused more on the future consumption threat rather than the slow depletion of global inventories.
But the extremely bearish positioning in Brent and other contracts has created a potentially attractive entry point for new bullish long positions – provided a slowdown is averted.
Front-month Brent futures prices have bounced back above $80 per barrel from a low of just $75 per barrel at one point on Aug. 5.