Photographer: Andrey Rudakov / Bloomberg
Photographer: Andrey Rudakov / Bloomberg
Investors and oil companies are storming back to the crude market.
Total holdings of Brent and WTI futures have risen to their highest level since May. This comes as banks of Goldman Sachs Group Inc. to JPMorgan Chase & Co. the market outlook is brightening and some large hedge funds are talking about commodities entering a price supercycle.
The increase in public interest indicates a reversal after the precipitation of oil below zero, which provoked a collapse in global raw production, at the same time as the decline in consumption. Trading declined last year as U.S. crude production plunged and consumers such as airlines withdrew from the hedge space. The nadir was November. Since then, things have taken a turn for the worse, with a sharp setback this year.
“People are reconsidering the investment case for the commodity asset class,” said Harry Tchilinguirian, BNP Paribas oil strategist. “Public interest in oil is increasing again as macro-oriented funds investigate the commodity issue.”
JPMorgan is one of the banks that says it favors goods as a hedge against inflationary pressures, while Bank of America Corp already thinks that inflationary pressures are already helping to push oil prices higher.
Repair
The rally has also fueled an increase in producer hedging, with WTI for 2022 approaching $ 50 a barrel. Brent for the same period is already above the marker. According to Fatih Birol, executive director of the International Energy Agency, a large amount of shale oil production at the current level is profitable.
In addition to the recovery in activity, there was also a surge in the number of strong market participants. Last week, there were 163 money managers with long positions in Brent and WTI, the most since February. It is below a low of 94 in March.
The move is good news for CME Group Inc. and Intercontinental Exchange Inc., which owns the world’s largest oil exchange.
“Our WTI markets continue to reflect wide participation around the world as customers manage their global price risk,” said Peter Keavey, CME Group’s Managing Director of Energy Products. “WTI is still the choice for managing crude oil exposure.”
Ru has had more reasons to move so far this year. A large index About $ 9 billion is expected to flow into the market in the past week as prices have risen to 10-month highs. In addition, the weakness in the dollar again leads to the repetition of a commodities supercycle. Both JPMorgan and Goldman Sachs have recommended over the past few days to increase exposure to the sector.
There is, of course, ‘a lot of producer hedging, and some of it will be exchanged in some form’, said Paul Horsnell, head of commodity research at Standard Chartered Plc.
In addition, the short positions of barter traders – a sign of banks managing the hedges their producers sell – to their highest level since April last week.
And with the predictions of a global economic recovery this year, there may be more inflows for oil. The value of the public interest rates of Brent and WTI is still about a third lower than a peak of $ 408 billion in 2018, but the The World Bank expects 4% growth in the world economy this year and a 7.9% rise in China, the world’s largest oil importer.
“Brent is the global benchmark for crude oil pricing, and as forecasts for global economic activity improve, we see strong demand for trading and risk management through the Brent futures market,” said Jeff Barbuto, global head of oil markets at ICE. said.