In the early stages of the banking crisis, portfolio investors sold petroleum futures and options at one of the quickest rates ever recorded as traders predicted an increased likelihood that a recession would have an impact on oil consumption.
On the seven days ended March 14, hedge funds and other money managers sold the equivalent of 139 million barrels in the six most significant futures and options contracts.
In the 522 weeks since ICE Futures Europe and the U.S. Commodity Futures Trading Commission began to publish records in this format in 2013, the volume of sales was the 12th largest.
At the end of January, fund managers have sold a total of 148 million barrels, bringing their overall position to 432 million barrels (20th percentile for all weeks since 2013).
The most recent week saw significant declines in the prices of Brent (-65 million barrels), NYMEX and ICE WTI (-59 million), U.S. gasoline (-12 million barrels), and European gas oil (-7 million), with only modest increases in the prices of U.S. diesel (+4 million).
Since the end of January, investors have been significantly more concerned about the prospects for oil prices as a result of ongoing inflation, rising interest rates, and a confidence crisis sweeping banks in North America and Europe.
3.42:1 (37th percentile) is the ratio at which bullish long positions outnumber bearish long positions, down from 5.93:1 (80th percentile) on January 24.
Chartbook: Petroleum investment positions
According to the Federal Reserve’s Chief Financial Officer Survey conducted in November 2022, more American banks anticipated growing their balance sheets during the following six months (26 out of 80 institutions) than contracting them (8 of 80).
According to the Senior Loan Officer Opinion Survey conducted by the Fed in January 2023, a small percentage of banks reported having tightened credit criteria, imposed stricter conditions, or raised spreads over the previous three months.
Nonetheless, as banks strengthen their balance sheets to defend themselves against potential runs, credit conditions in North America and Europe are expected to tighten dramatically in the wake of the banking crisis.
Stress-induced tightening will intensify the tightening already occurring as a result of interest rate rises led by central banks.
The most marginal borrowers will be severely hurt by the decreased loan availability to consumers and businesses, which is an additional headwind that is expected to slow down economic growth and change the trajectory of petroleum consumption.
