By Shariq Khan
Investors’ Bearish Sentiment Deepens as Oil Prices Plummet to Multi-Year Lows
Investors were more bearish than ever on oil last week, deepening a months-long selloff that pressured prices to multi-year lows amid growing concerns of weak demand in top consuming nations.
Negative sentiment swept oil markets so strongly that short positions on oil overtook long positions for the first time, data from the Intercontinental Exchange (NYSE:) showed on Friday. Short positions – bets on lower prices – totaled 164,223 contracts, while long positions, or bets on higher prices, amounted to 151,543 contracts, the data showed.
"This historic speculative selling pressure prompted a more than $10/bbl collapse in crude prices between late-August and this past Tuesday," Commodity Context analyst Rory Johnston wrote.
Investors’ oil outlook has soured as demand growth for the commodity has failed to meet the lofty levels of recent years, pressured by turmoil in top importer China’s economy. Supplies have also overwhelmed markets this year, with U.S. oil producers pumping record amounts of oil.
Brent crude futures settled below $70 a barrel on Sept. 10 for the first time since December 2021. They closed at $72.75 a barrel on Tuesday, down more than 20% since this year’s peak of more than $90 a barrel in mid-April.
Hedge funds were particularly bearish on diesel as prices approached their lowest levels in three years, TACenergy traders wrote on Monday.
Money managers increased short bets on U.S. ultra-low sulfur diesel futures by more than 12,000 contracts to 65,084 contracts in the week to Sept. 10, data from the Commodity Futures Trading Commission showed.
ULSD futures slumped to $2.04 per gallon last week, their lowest since December 2021, dragged down by weak economic activity and growing use of alternative fuels.
Record-low sentiment in speculative markets could mean that the months-long slump in oil prices is nearing its end, going by historical patterns, market participants said.
"Extreme positions by speculators are known to be reliable contrary indicators as when everyone gets on the same side of the boat, that’s when it tips over," U.S. fuel distributor TACenergy said.
They cautioned that it is hard to predict when positioning will reverse, but markets could see sharp volatility when it does.
“With so much combined short interest, when the bidding does start, you can expect there to be some fast price spikes,” TACenergy said.
**Analysis:** Investors are increasingly bearish on oil as prices hit multi-year lows due to weak demand and oversupply. Speculative selling pressure has caused a significant drop in crude prices, leading to concerns about the future of the oil market. The current sentiment suggests that the downward trend may be nearing its end, but sharp volatility could be expected when market positioning reverses. This situation highlights the importance of closely monitoring market trends and being prepared for potential price spikes.