Money managers have piled up bullish bets on U.S. gasoline futures as seasonal inventories have dropped over the past two months to lower levels than average.
While traders, hedge funds, and other portfolio managers have reduced their bullish bets on the U.S. benchmark futures, WTI Crude, the bets on rising U.S. gasoline futures have increased over the latest reporting week and over the weeks since September.
The fastest drawdown in gasoline inventories for this time of year since 2010 attracted managed money into the NYMEX gasoline futures, which were one bullish bet among investors in the petroleum complex. Meanwhile, traders remain relatively bearish on the two most traded crude oil futures, according to data from exchanges and regulators compiled by energy analyst John Kemp in his blog article.
In the week to November 19, the latest available data point, money managers added 7,319 lots to the net long position – the difference between bullish and bearish bets – in NYMEX gasoline contracts, the commitment of traders (COT) report compiled by Saxo Bank showed.
This raised the total net long to 68,380 lots in the week to November 19, as more than 5,000 lots were added to the net longs and more than 2,000 shorts were liquidated.
Equalized to barrels, this means that hedge funds and other money managers were net buyers of U.S. gasoline futures in most of the weeks since the middle of September and now hold a net long of 68 million barrels in RBOB Gasoline. That’s significantly higher than the net long of just 5 million barrels held on September 10, according to Kemp’s estimates.
So, in the ten weeks between September 10 and November 19, traders were net buyers of gasoline in eight of these, and boosted their net long by 63 million barrels, Kemp notes.
That’s more bullish than the recent trends in positioning in crude oil futures.
In the week to November 19, funds cut their WTI Crude long amid fresh short selling. At the same time, traders boosted their net long in the Brent Crude futures, driven by fresh longs and short covering.
Speculative interest in Brent Crude was pushed up by the escalation in the Russia-Ukraine war.
Still, traders continue to be bearish on the most important petroleum futures and contracts with one exception – U.S. gasoline.
During the period in which money managers had amassed their net long position of the equivalent of 68 million barrels, U.S. gasoline inventories fell by 13 million barrels—the biggest two-month draw between mid-September and mid-November since 2010, according to data compiled by Kemp. The 10-year average gasoline draw over this period is about 5 million barrels.
As of early November, U.S. gasoline inventories had slumped to the lowest level in two years. Since then, they have marginally increased but have remained at about 4% below the five-year average for this time of year.
Hence, traders now hold a more bullish view toward U.S. gasoline futures compared to other fuels and crude oil futures.
U.S. refining margins have also ticked up in recent weeks from the multi-year lows hit in September.
This year, the September monthly average refinery margin globally fell to its lowest for the month since the pandemic year 2020, according to data from the U.S. Energy Information Administration (EIA).
In recent weeks, due to lower-than-average U.S. gasoline stockpiles, the U.S. margins have recovered slightly.
The 3-2-1 crack spread – which is a theoretical refinery crude yield to produce two barrels of gasoline and one barrel of diesel for every three barrels of crude input – has increased to about $18 per barrel so far this month, up from $15 per barrel back in September, according to Kemp’s analysis.
Next year, the closing of two refineries in the U.S. is expected to slow the decline of U.S. refining margins, the EIA said earlier this month.
By Tsvetana Paraskova for Oilprice.com
