Photographer: Andrey Rudakov / Bloomberg
Photographer: Andrey Rudakov / Bloomberg
Investors and oil companies are returning to the oil market.
The total holdings in Brent and WTI futures rose to the highest level since May. This is at a time when banks from Goldman Sachs Group Inc. to JPMorgan Chase & Co. see the market outlook brightening and some large hedge funds speak of commodities entering a pricing super cycle.
The increase in open contracts marks a turnaround after the fall of oil below zero, a stampede that spurred a collapse in global oil production, at the same time as a drop in consumption. Business plummeted last year, with US oil production falling and consumers like airlines withdrawing from the hedge market. The nadir was November. Since then, things have improved, with a sharp recovery this year.
“People are reconsidering the investment case for the commodity asset class,” said Harry Tchilinguirian, oil strategist at BNP Paribas. “Open interest on oil is rising again, as macro-oriented funds analyze the case of commodities.
JPMorgan is among the banks that claim to favor commodities as protection against inflationary pressures, while Bank of America Corp. believes that reflective pressures are already helping to raise oil prices.
Recovery
The rise also spurred an increase in the producer’s hedge, with the WTI for 2022 approaching $ 50 a barrel. Brent for the same period is already above that marker. A large part of shale oil production is profitable at current levels, according to the executive director of the International Energy Agency, Fatih Birol.
Along with the recovery in activity, there was also a recovery in the number of optimistic market participants. There were 163 money managers with long positions in Brent and WTI last week, the largest since February. This is above 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 exchanges.
“Our WTI markets continue to reflect broad participation worldwide, as customers manage their global price risk,” said Peter Keavey, managing director of energy products at CME Group. “WTI remains the market’s choice to manage exposure to crude oil.”
Crude oil has had more reason to be stimulated so far this year. A large index The rebalancing was expected to generate a flow of around $ 9 billion into the market last week, with prices rising to 10-month highs. In addition, the dollar’s weakness is spurring new conversations about a commodity super cycle. Both JPMorgan and Goldman Sachs have recommended increasing exposure to the sector in recent days.
There are “a lot of producer hedging, of course, and part of that, somehow, will go to the exchanges,” said Paul Horsnell, head of commodity research at Standard Chartered Plc.
In addition, swap traders’ short positions – a sign that banks manage the hedges they sold to producers – have risen to their highest level since April last week.
And with predictions of a global economic recovery this year, there are potentially more inflows of oil. The value of Brent and WTI’s outstanding contracts is still about a third below a peak of $ 408 billion in 2018, but the The World Bank expects growth of 4% in the global economy this year, and an increase of 7.9% in China, the largest oil importer in the world.
“Brent is the global benchmark for the price of crude oil, so as forecasts for global economic activity improve, we are seeing strong demand for trading and risk management through the Brent futures market,” said Jeff Barbuto, global head of oil markets at ICE.