LONDON, Jan 17 – Portfolio managers purchased oil last week at the fastest rate for 14 months amid growing confidence that the latest wave of coronavirus infections will not have a significant effect on international aviation and oil consumption.

Column: Looking beyond Omicron, oil investors focus on tight supply- oil and gas 360

Source: Reuters

Hedge funds and other money managers purchased the equivalent of 83 million barrels in the six most important petroleum-linked futures and options contracts in the week to Jan. 11.

Fund managers have purchased a total of 184 million barrels over the four most recent weeks as bullish sentiment returned after selling 327 million barrels in the 10 previous weeks (

Bullish long positions now outnumber bearish short ones by a ratio of 6.2 to 1 (in the 80th percentile for all weeks since 2013) up from a ratio of only 3.8 to 1 (47th percentile) on Dec. 14.

The combined net position across all six contracts has risen to 729 million barrels (65th percentile), up from only 544 million barrels (38th percentile) four weeks ago.

Both the long-short ratio and combined position are rapidly returning to levels last seen in October, when bullish sentiment peaked, before the rapid spread of the Omicron coronavirus variant.

In the most recent week, funds added 68 million barrels of new bullish long positions while trimming 15 million of previous bearish short ones, confirming the return of bullish sentiment.

Funds were buyers of Brent (+43 million barrels), NYMEX and ICE WTI (+22 million), European gas oil (+11 million) and U.S. heating oil (+8 million), with minor sales of U.S. gasoline (-1 million).

The focus on crude and middle distillates indicates that most of the buying is driven by increasing optimism about a continued business cycle expansion as well as a resumption of international passenger aviation.

Crude and middle distillates are the most closely geared to the manufacturing cycle and international freight movements, while middle distillates are also closely linked to flying demand and jet fuel.

Fund managers expect the market to return to the under-supplied position that prevailed three months ago before Omicron briefly threatened a return to widespread lockdowns, international quarantines and recession.

In line with this, front-month Brent futures have risen by $14 a barrel (20%) from their recent low in the week before Christmas.

Brent’s six-month calendar spread has tightened into a backwardation of $4.55 (97th percentile for all trading days since 1990), up from $1.66 (68th percentile) on Dec. 20.

The production-consumption outlook has returned to roughly the same position as October and positions are reverting in parallel.

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