The latest data shows that before the outbreak of the Israeli-Palestinian conflict, fund managers sold 57 million barrels of crude oil, and the increase in US gasoline inventory also triggered sales...

Prior to the conflict between Hamas and Israel, investors were less optimistic about the prospects for crude oil and fuel prices, as they were concerned about the sustainability of the strong rebound over the past three months.

As benchmark oil prices approached $100 per barrel, and the decline in inventories near the WTI crude delivery point in Cushing halted, it seemed that some of the accumulated bubble in the market was blown away.

In the seven days ending on October 3, hedge funds and other fund managers sold crude oil equivalent to 33 million barrels in six of the most important oil-related futures and options contracts.

Fund managers sold a total of 57 million barrels of crude oil in two weeks, following 398 million barrels sold over 12 weeks since the end of June.

Last week, most of the selling was concentrated in Brent crude, with 25 million barrels sold, but WTI crude (-6 million barrels) also saw a small amount of sales for the first time.

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As a result, the net position of Brent crude oil dropped from 266 million barrels on September 19 (the 58th percentile since 2013) to 218 million barrels (the 46th percentile).

The imbalance of investor positions has been greatly reduced, with the ratio of bullish long positions to bearish short positions falling from 11.57:1 (the 92nd percentile) to 6.11:1 (the 69th percentile).

The increase in US gasoline inventory triggered sales

With a significant increase in inventory, investors' optimism about the outlook for US gasoline prices has greatly diminished. In the week ending on October 3, hedge funds and other fund managers sold gasoline equivalent to 3 million barrels.Since September 12th, fund managers have sold a total of 22 million barrels of gasoline each week for the past three weeks. Consequently, net positions have dropped from 71 million barrels (the 77th percentile) to 48 million barrels (the 42nd percentile). The ratio of long to short positions has also decreased from 3.53:1 (the 42nd percentile) to 5.44:1 (the 63rd percentile).

The shift in market sentiment coincided with a significant increase in gasoline inventories on September 29th, rising to 227 million barrels, higher than the low of 215 million barrels on September 1st, four weeks prior.

Gasoline inventories have swung from a decrease of 8 million barrels to an increase of 5 million barrels, above the seasonal average for the past decade.

U.S. Natural Gas Inventory Decline Fails to Stir Optimism

Despite the gradual reduction of excess inventory carried over from the 2022/23 winter, investors still find it difficult to be optimistic about the prospects for U.S. natural gas prices.

Hedge funds purchased futures and options equivalent to 282 billion cubic feet in the two main contracts linked to U.S. natural gas prices. However, according to records submitted to the Commodity Futures Trading Commission (CFTC), this did not even reverse the sell-off of 38 billion cubic feet from the previous week.

The net long positions held by funds are only 9 billion cubic feet (the 32nd percentile since 2010), significantly lower than the recent high of 74.3 billion cubic feet on July 11th (the 48th percentile).

Working natural gas storage stands at only 6.8 billion cubic feet, down from 29.9 billion cubic feet at the end of June.

Adjusted for inflation, the front-month futures prices have gradually risen from the recent low of $2.22 per million British thermal units in April to an average slightly above $3 per million British thermal units in October.Therefore, the actual prices in October have risen from the 2nd percentile in April (since 1990) to the 12th percentile at present, but are still far below the long-term median of around $5.30.

However, the prospect of a super strong El Niño effect in the Pacific leading to above-average temperatures in most parts of northern United States during the 2023/24 winter has temporarily limited any greater optimism.