Hedge funds have been safeguarding against a global economic slowdown via commodity shorts in all likelihood. Bloomberg data showed a net short of 153K contracts across 20 raw-materials markets in the latest week, that’s the most since at least 2011.
The positioning is particularly stark in oil, where the net was cut by 110 million barrels through Tuesday in the most-intense move since covid. Brent positioning is at a record low.
Today’s OPEC forecasts weren’t as bearish as feared and broader sentiment has improved, that’s led to a $1 rise in oil prices in the fifth consecutive day of gains.
WTI crude oil daily
The report forecast demand will rise by 2.11 million barrels per day compared to 2.25 in last month’s report. The ratchet down is largely due to China’s sluggish economy and transition to EVs. OPEC also cut next year’s demand growth to 1.78 million barrels from 1.85 mbpd. Both of those are well-above IEA estimates, which are due to be updated tomorrow.
Given the improving mood in markets and extremely bearish positioning, I think there is an opportunity here for those who don’t believe the global economy is in a cliff-dive.