Energy: Position changes across the energy sector were particularly interesting, not least considering some of the market developments that unfolded following last Tuesday. Crude oil was mixed with a 25.9k lots increase in WTI and a 39.9k reduction in Brent reducing the combined long by 3.5% to 376.7k lots, a five-months low. This before Saudi Arabia’s warning to OPEC+ cheaters and short-sellers helped oil to its best week since June. Since July when fundamentals, but not the oil price, started to weaken, the gross short held by funds in WTI and Brent crude has more than doubled to reach 248k lots.
It was this development that the Saudi oil minister saw as a worry but also an opportunity to force the price higher through short-covering. While short sellers may move the market for a short period of time, fundamentals will always be the main driver. And while the recent 15% correction in Brent crude oil helped to bring the price more in line with current fundamentals, a recovery from here needs more than verbal intervention, despite it coming from the world’s biggest producer.
Natural gas bulls found themselves caught on the wrong side of the market after increasing their net-long in four Henry Hub deliverable futures and swap contracts to the 325k lots, the highest since May 2017. Lower demand triggered by lockdowns and Hurricane Sally disruptions impacting both demand and exports helped drive a bigger-than-expected weekly inventory build, As a result the price cratered before finding support at a key technical level below $2/MMBtu.