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Hedge Funds Cut Their Optimistic Crude Oil Rates

Hedge funds are ditching their bullish crude oil bets in a sign that old optimism about energy is dissipating again amid the COVID-19 pandemic.

Treasury managers cut their bullish Brent rates last week at the fastest pace in six months. According to the Commodity Futures Trading Commission, the net position of cash managers in the futures market fell by the equivalent of 67.31 million barrels of oil, the biggest weekly drop since the coronavirus crisis in Russia.

Funds sold a total of 171 million barrels of crude oil and petroleum products in the past week, according to Reuters commodities and energy analyst John Kemp, the fastest in two years, with West Texas Intermediate down 57 million barrels and US gasoline down 12 million barrels.

After restrictions around the world began to ease in April and May, fund managers quickly loaded up with oil futures and options, betting on a sustained recovery in demand and prices, pushing net managed cash reserves back to pre-coronavirus levels.

But a second wave of COVID-19 cases and scattered restrictions have darkened demand prospects again, prompting the Organization of the Petroleum Exporting Countries to lower its expectations of global consumption and demand for its own crude oil.

OPEC lowered its 2020 demand forecast by 400,000 barrels per day from its previous estimate in its monthly oil market to reflect a 9.5 million barrels per day decline. OPEC expects demand to grow by 6.6 million barrels per day in 2021, down 400,000 barrels from last month.

Brent oil futures investors now have the smallest net long position since mid-April.

“The recovery in global energy demand continues to show signs of slowing down. Many countries around the world, especially in Europe and Asia, are now at the epicenter of the second wave of coronavirus, ”said Ole Hansen, head of commodity strategy at Saxo Bank. ...

“As a result, the recovery in fuel demand has stalled due to lack of work from home and lack of leisure and business travel, both signs that it will take longer than expected to return to pre-viral levels of energy demand,” he added.

The COVID-19 pandemic has eroded the demand for transport fuels such as gasoline and jet fuel, affecting overall energy demand.