Hedge Funds’ Ultra-Bearish Oil Bets Signal US Recession Angst Non-commercial positions are near most bearish since 2011
ByDevika Krishna Kumar and Chunzi Xu May 20, 2023 at 9:00 AM EDT
Money managers that trade derivatives linked to oil and fuel prices are about as bearish as they’ve been in more than a decade, suggesting they’re braced for a recession that could cause contracts from crude to jet fuel to take another tumble.
The trading positions of non-commercial players such as hedge funds are near the most bearish levels since at least 2011 across a combination of all major oil contracts. And in bets that are perhaps most indicative of recession expectations, speculators’ combined views on diesel and gasoil — fuels that power the economy — are near the most bearish levels since early in the Covid-19 pandemic.
The gloom over the oil market this year has come from multiple directions, including expectations that the Federal Reserve’s rate hikes will provoke a contraction and China’s less-than-booming rebound from its Covid-19 restrictions. Add in the threat of a US default if politicians fail to raise the debt ceiling and the possibility that OPEC+ may not deliver all the output cuts they’ve pledged, and traders have no shortage of bear scenarios to choose from.
“It’s pretty remarkable to see this type of positioning,” Greg Sharenow, who manages a portfolio focused on energy and commodities at Pacific Investment Management Co., said in an interview.
Today we have yet another data point from CAT (#msg-172490389) to supplement the recent data point from DE (#msg-171947205) to argue against a near-term economic downturn.
True, both DE and CAT have special tailwinds, but we can’t simply dismiss the stellar performance of these two bellwethers from the outlook for the global economy.
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