Money managers have ramped up their bullish positions on U.S. gasoline futures as seasonal inventories have fallen to below-average levels over the past two months.
While traders and hedge funds have reduced their bullish bets on U.S. crude oil futures (WTI), they have become more optimistic about U.S. gasoline futures. This shift in sentiment has been particularly evident in recent weeks, as gasoline inventories have experienced their fastest decline for this time of year since 2010. This has led money managers to invest more heavily in NYMEX gasoline futures, marking a significant contrast to the more bearish positions in the crude oil market.
Data compiled by energy analyst John Kemp reveals that traders have shown more interest in gasoline futures compared to crude oil. As of November 19, the latest available data, money managers added 7,319 contracts to their net long position in NYMEX gasoline futures, according to the Commitment of Traders (COT) report from Saxo Bank. This increase raised the total net long position to 68,380 contracts, up from just 5,000 contracts on September 10.
In the ten weeks between September 10 and November 19, traders were net buyers of gasoline futures for eight of those weeks, increasing their net long position by 63 million barrels. This trend contrasts with the relatively bearish stance on crude oil futures.
During the same week, funds reduced their long positions in WTI Crude, with new short positions emerging. At the same time, traders grew more optimistic about Brent Crude futures, driven by new long positions and short covering, partly due to the ongoing Russia-Ukraine conflict.
The focus on U.S. gasoline futures has been driven by a sharp reduction in gasoline inventories. Between mid-September and mid-November, U.S. gasoline stocks fell by 13 million barrels, the largest two-month decline since 2010. The typical drawdown for this period is about 5 million barrels. As of early November, gasoline inventories had dropped to their lowest levels in two years, though they have since risen slightly, remaining 4% below the five-year average.
This significant inventory draw has bolstered the bullish outlook for gasoline futures, while traders continue to hold more cautious views on crude oil. Additionally, U.S. refining margins have shown signs of recovery after hitting multi-year lows in September. The 3-2-1 crack spread, a key measure of refinery profitability, has increased to about $18 per barrel this month, up from $15 per barrel in September.
The U.S. Energy Information Administration (EIA) has also noted that two U.S. refineries are expected to close next year, which could slow the decline in refining margins.
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