An aerial view of storage tanks at the Kinder Morgan Watson station, a gathering system for petroleum and refined petroleum product pipelines, in Long Beach, California, U.S., March 11, 2022. Photo taken with a drone. REUTERS/Bing Guan/Files

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LONDON, June 6 (Reuters) – Portfolio investors have started to look to oil again as looming EU sanctions on Russian exports and easing lockdowns in China outweigh fears of a possible recession in Europe and North America.

Hedge funds and other money managers bought the equivalent of 32 million barrels in the six largest futures and options contracts in the week to May 31, according to stock and regulatory data.

The funds have been net buyers in two of the past three weeks, increasing their position by a total of 83 million barrels (15%) since May 10, the fastest comparable increase in four months.

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The past week has seen buying across the board in Brent (+13 million barrels), NYMEX and ICE WTI (+7 million), European gas oil (+5 million), US diesel (+3 million) and American gasoline (+3 million). ).

The combined position of 631 million barrels remains subdued, in only the 53rd percentile for all weeks since 2013, but the ratio of longs to shorts, at 6.54:1, shows a strong bullish bias, in the 83rd. percentile.

On the supply side, the EU approved a sixth set of sanctions, phasing out most purchases of Russian crude and products, including distillates, by the end of 2022 or the beginning of 2023. which is expected to intensify shortages of both.

On the demand side, China has eased the lockdown imposed on Shanghai, and the government’s zero-COVID strategy is tempered by the need to support the economy, which will likely boost crude and distillate consumption.

These bullish signals more than offset lingering fears of a slowing economic cycle or outright recession in Europe and North America.

In the United States, the most recent economic data shows that growth has slowed after last year’s exceptional post-epidemic rebound, but is still maintaining considerable momentum, which will keep oil consumption high. short term.

Fund managers increased their position in middle distillates such as diesel and gas oil by 8 million barrels, the fastest increase in 17 weeks.

Distillate inventories continued to decline on the US East Coast, reflecting the severe shortage across the North Atlantic basin caused by sanctions and cyclically high levels of manufacturing and freight activity.

With distillate consumption in China likely to rise as the government stimulates domestic growth, while EU sanctions hit Russia’s distillate exports particularly hard, this part of the market is expected to tighten further.

Associated columns:

– Recession risk prompts funds to remain cautious on oil despite sanctions (Reuters, May 30) read more

– Hedge funds more bullish on crude as sanctions loom (Reuters, May 23) read more

– Oil hedge funds caught between sanctions and recession (Reuters, May 16) read more

– Hedge funds adjust to new oil normal (Reuters, May 9) read more

John Kemp is a market analyst at Reuters. Opinions expressed are his own.

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Editing by Jan Harvey

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