Column-Oil investors set for supply fall to offset weak economy: Kemp

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By John Kemp

LONDON (Reuters) - Investors expect a planned U.S. and EU price cap to disrupt Russia's crude exports by enough to offset the impact of an economic slowdown on oil consumption, boosting prices.

Hedge funds and other money managers bought the equivalent of 41 million barrels in the six most important petroleum futures and options contracts in the week ending on Nov. 8.

Fund managers have been large buyers of petroleum in five of the most recent six weeks, purchasing a combined 169 million barrels since Sept. 27.

In the most recent week, purchases were concentrated on the crude side in NYMEX and ICE (NYSE:ICE) WTI (+19 million barrels) and Brent (+10 million).

There was smaller buying in U.S. gasoline (+7 million barrels) and U.S. diesel (+4 million) and no change in European gas oil.

Chartbook: CFTC and ICE commitments of traders

In total, funds have purchased 130 million barrels in crude contracts over the last six weeks, accounting for most of the petroleum buying since late September.

As a result, the combined crude position has climbed to 443 million barrels (39th percentile for all weeks since 2013), up from 314 million barrels (10th percentile).

The ratio of bullish long positions to bearish short positions has risen to 5.36:1 (62nd percentile) from 3.78:1 (37th percentile).

Positioning suggests most fund managers are bullish about the outlook for prices, but with only low levels of conviction.

Portfolio managers have re-entered the crude market even as the outlook for the economy and oil consumption has deteriorated: * Scheduled output cuts by OPEC+ and disruption stemmingfrom the price cap on Russia’s crude exports from Dec. 5 areexpected to more than offset the reduction in forecastconsumption. * The current phase of the drawdown in the U.S. StrategicPetroleum Reserve (SPR) will be completed soon, reducingavailable crude supplies, unless further releases are ordered. * Refiners are assumed to boost crude processing as theyattempt to stabilise and then rebuild depleted inventories ofdiesel and other middle distillates, which will tighten crudesupplies further.

For the time being, investors expect the tightening supply side to offset weakness from the demand side driven by the economic slowdown, supporting prices.

Related columns:

- Hedge funds tempted back into crude oil market by limited supply (Reuters, Nov. 7)

- Oil funds trapped between low inventories and slowing economy (Reuters, Oct. 31)

- Oil investors on defensive as recession forces intensify (Reuters, Oct. 24)

- OPEC⁺ cut draws hedge funds back into the oil market (Reuters, Oct. 10)

John Kemp is a Reuters market analyst. The views expressed are his own