Oil bulls emboldened by EU sanctions and China easing lockdowns

Oil bulls emboldened by EU sanctions and China easing lockdowns

Funds have been net buyers in two of the last three weeks, increasing their position by a total of 83 million barrels (15%) since May 10, the fastest comparable increase for four months (https://tmsnrt.rs/3xlCZhV).

The latest week saw purchases across the board in Brent (+13 million barrels), NYMEX and ICE WTI (+7 million), European gas oil (+5 million), U.S. diesel (+3 million) and U.S. gasoline (+3 million).

The combined position of 631 million barrels remains moderate, in only the 53rd percentile for all weeks since 2013, but the ratio of long to short positions, at 6.54:1, displays a strongly bullish bias, in the 83rd percentile.

On the supply side, the EU has approved a sixth sanctions package, phasing out most purchases of Russian crude and products, including distillates, by the end of 2022 or early 2023, which is likely 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 being tempered by the need to support the economy, likely boosting consumption of crude and distillates.

Those bullish signals more than offset continued fears of a business cycle slowdown or an outright recession in Europe and North America.

In the United States, the most