By Shariq Khan
NEW YORK (Reuters) – Investors were more bearish than ever last week, deepening a months-long sell-off that pushed prices to multi-year lows amid growing concerns about weak demand in top-consuming countries.
Negative sentiment swept oil markets so much that short positions overtook long positions for the first time, data from the Intercontinental Exchange (NYSE:) showed Friday. Short positions – bets on lower prices – totaled 164,223 contracts, while long positions, or bets on higher prices, totaled 151,543 contracts, the data showed.
“This historic speculative selling pressure led to a crude oil price collapse of more than $10 per barrel between late August and last Tuesday,” wrote Commodity Context analyst Rory Johnston.
Oil prospects for investors have deteriorated as demand growth for the commodity has failed to reach the high levels seen in recent years, pressured by turmoil in the economy of China’s biggest importer. Supply has also overwhelmed markets this year, with US oil producers pumping record amounts of oil.
Brent crude futures fell below $70 per barrel on September 10 for the first time since December 2021. They closed Tuesday at $72.75 a barrel, down more than 20% from this year’s peak of more than $90 a barrel in mid-April.
Hedge funds were particularly bearish on diesel as prices neared their lowest levels in three years, TACenergy traders wrote on Monday.
Money managers increased short bets on US ultra-low sulfur diesel futures by more than 12,000 contracts to 65,084 contracts in the week to September 10, Commodity Futures Trading Commission data showed.
ULSD futures fell to $2.04 per gallon last week, the lowest level since December 2021, due to weak economic activity and increasing use of alternative fuels.
The historically low sentiment in speculative markets could mean that the months-long decline in oil prices is nearing an end, following historical patterns, market participants said.
“Extreme positions of speculators are known to be reliable contrary indicators because when everyone gets on the same side of the boat, the boat tips over,” said US fuel distributor TACenergy.
They warned that it is difficult to predict when positioning will reverse, but that markets could see sharp volatility if it does.
“With so much combined short interest, when bidding begins, expect some rapid price spikes,” TACenergy said.
