Let’s begin with a look at hedge fund activity as it relates to the petroleum sector, with information provided from John Kemp.
‘Investors have eliminated bearish positions and started to rebuild a bullish long position in crude oil in response to the threat of intensified U.S. sanctions on exports from Russia and Iran. The combined position was transformed into a net long of 501 million barrels (44th percentile for all weeks since 2011) from a record bearish net short position of 34 million barrels on September 10.
- Most of the purchases have been concentrated in crude (387 million barrels) rather than refined fuels (149 million) as the prospective surplus in crude oil production has disappeared: Saudi Arabia and its OPEC⁺ partners have postponed output increases scheduled to go into effect from the start of 2025.
- The United States and China have reported improved business conditions in manufacturing, which should boost fuel consumption.
- The outgoing Biden administration has toughened sanctions on Russia’s crude exports while the incoming Trump administration is expected to do the same on Iran.
Fund managers have become much less bearish about the crude outlook and even started to build outright bullish positions. In the most recent week, funds added 78 million barrels of new bullish long positions in crude, the largest one-week increase for 9 months. The total position across Brent and WTI has been boosted to 434 million barrels (53rd percentile), the highest since April 2024.’
The hedge funds have rebalanced their positions and outlook on crude oil, as the 53rd percentile is about as down the middle as possible. The crude oil markets have been rangebound for over a year, with the 2024 range being from $67/bbl to $86/bbl. This price level is a bit of a Goldilocks zone, with the high end not enough to spark new rounds of inflation.
Of course, we are one week away from President-Elect Trump resuming power in the White House, and his threats of tariffs on Canada, namely Canadian energy products, have our industry waiting with bated breath. If tariffs get slapped on imported propane, that could create an instant and steep rise in propane prices for many Northern Tier states, including New York, Michigan, and the PNW. The chain of price increases will go from tariff importer to wholesaler to retailer to the American consumer.
