June 22, 2024
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Record Sales by Portfolio Investors Following OPEC+ Production Increase Announcement

Portfolio investors sold a record volume of petroleum last week after OPEC+ announced plans to increase production starting from the fourth quarter of 2024.

According to Reuters, hedge funds and other money managers sold the equivalent of 194 million barrels in the six most significant futures and options contracts over the seven days ending on June 4.

This wave of sales marked the fastest for any week since at least 2013 when the U.S. Commodity Futures Trading Commission and ICE Futures Europe began publishing data in its current format.

The volume of sales was more than three standard deviations from the average weekly change, highlighting the surprise felt by investors due to the production increase announcement.

The breakdown of sales is as follows: Brent (-102 million barrels), NYMEX and ICE WTI (-53 million), European gas oil (-17 million), U.S. diesel (-15 million), and U.S. gasoline (-6 million).

The rapid selling of crude, particularly Brent, indicated that traders believed the crude market would remain stable for the rest of the year and into 2025.

However, the significant selling of refined fuel contracts also reflected investors’ concerns over lukewarm consumption levels and growing inventories of gasoline and diesel. This bearish sentiment extended across the entire petroleum complex.

Total petroleum positions were slashed to 208 million barrels, the lowest level since a single week in December 2023, and before that, January 2016. Brent positions were cut to their third-lowest level on record at just 46 million barrels, down from 335 million just seven weeks earlier.

This intense hedge fund selling contributed to pushing front-month Brent futures prices to their lowest level in four months on June 4.

In subsequent communications, OPEC+ officials have reiterated that the scheduled production increase can be “paused or reversed subject to market conditions.” This re-emphasis on the contingent nature of the planned boost has helped stabilize the market, with prices rising slightly. Nevertheless, the recent OPEC+ meeting will be remembered as a major “OPEC⁺ surprise” that did not unfold as ministers had intended.

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