Investors cut bullish positions in oil in anticipation of recession

Mass selloff of petroleum by portfolio investors has been registered for four successive weeks. A notable sale of petroleum-related futures and options took place over the previous week as well, with the total sum of contracts sold being an equivalent of 30 million barrels.

For all the mentioned four weeks, sales totaled 221 million barrels, as shown by records provided by the ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

The combined position was reduced from the level of 579 million barrels to 358 million.

As crude oil positions have already been harmed, the scale of further decline was limited. But still, the selloff reached refined products too, the middle distillates in the first place, that include main fuels for industry production and transport needs.

The mentioned factors resulted in the net position in Brent falling to the level of 95 million barrels. That is its lowest since the first two waves of COVID-19 in 2020.

The current negative circumstances for oil consumption and distillates were triggered by a combination of such factors as slowing GDP growth, interest rate hikes, sanctions, and high inflation levels.

At the same time, upside price risk might also be created by significantly low level of hedge fund positions in crude oil in case (or when) managers try to reclaim bullish positions.