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Hedge funds are betting on higher oil prices

Money managers are revealing growing confidence that oil prices will be able to rise this year thanks to expectations of a strong economic leap and growing global demand for crude oil.

Last week, hedge funds added the most bullish positions in the oil complex for more than two and a half months, as the net length of crude oil futures jumped to the highest of six weeks.

Growing mobility, economic recovery and stimulus packages point to strong economic growth and therefore strong growth in oil demand. Low interest rates and the Fed’s tolerance to keep inflation at a moderate level of more than 2 percent for some time also suggest that investors and speculators will buy more commodities, including oil, such as hedging against inflation.

Hedge funds look beyond the immediate COVID crisis in India to economic recovery in the coming months. This prompted them to add bullish oil bets for the third week in a row until April 27.

This week, portfolio managers added the equivalent of 30 million barrels to the six most important oil futures and options contracts, according to data from stock exchanges compiled by Reuters columnist John Kemp. This was the highest weekly wage for oil prices since early February.

The combined net length in crude oil reaches a six-week high with WTI is harsh leading in the increase, while speculators maintained an almost unchanged position in Brent Crude, mainly due to the increased number of naked short sales, Ole Hansen, head of product strategy at Saxo Bank, writes in comment on retailers’ engagement reports for the week ending 27 April.

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In general, the goods are the highest in ten years. The Bloomberg Commodity Spot Index, which tracks prices for 23 different commodities, including oil, reached Tuesday the highest since 2011. The index has risen more than 70 percent since reaching a four-year low in March 2020.

Although we are talking about a supercycle in oil has subsided in recent weeks, large investment banks such as Goldman Sachs continue to be very bullish on oil and commodities in general, expecting strong economic growth and easy monetary policy to help oil demand realize its biggest jump in the next six months. . Goldman sees oil prices hits $ 80 a barrel this summer and expects the entire commodity complex to grow by another 13.5 percent over the next six months.

The opening of economies and increased travel this summer will boost demand for all major fuels worldwide, including petrol, diesel and even jet fuel,, which showed the slowest recovery so far.

“For the first time in my life, I think traffic jams are beautiful,” said Jim Teague, CEO and co-CEO of Enterprise Products Partners. said for the first-quarter earnings call earlier this week.

“Although the economic recovery is not the same when you look at the world’s largest economies, demand has risen and all indications are that even Europe is not lagging behind,” he added.

Optimism that demand will return strongly is shared by hedge fund managers, who have shown with their bullish bets in recent weeks that oil consumption will rise despite failures in major emerging economies such as India and Brazil.

Inflation expectations are also likely to attract more buyers in oil contracts, as investors are willing to buy more commodities to hedge against inflation risks in their portfolios.

“As inflation is constantly moving below this longer-term target, the Committee will aim to achieve inflation moderately above 2% over time, so that inflation averages 2% over time and longer.?the term inflation expectations remain well fixed at 2 percent “, Fed said in a statement to the Federal Open Market Committee (FOMC) last week.

Oil demand recovery has been uneven across economies, but most, including the United States, China and now Europe, are showing signs of recovering significantly this year, reviving confidence among money managers that oil prices are still rising. still have room to rise above $ 70 a barrel.

By Tsvetana Paraskova for Oilprice.com

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