Investors' confidence plunged in late May, but their sentiment is now healing
June 24, 2024
Key Observations:
The chart at right maps institutional investors’ net position in ICE gasoil futures and options for seven dates since March 26 against the net position of commercial hedgers in the same market.
We select late March as the start because this is when a warm-winter-driven global inventory surplus in middle distillate heating fuels and new capacity in renewable diesel began to accentuate the normal seasonal compression in diesel cracks (Mind the (passing) gap, 26-Mar-2024).
The Risk Position Indicator (RPI) for commercial hedgers was neutral on March 26 (#1 in the chart). The NPIs for both hedgers and investors moved to a defensive posture over the next two weeks (#2).
By late April and into early May, the collective opinion of hedgers (producers plus consumers) was far more sanguine (RPI 0.70 to 0.80) about the seasonal and competitive pressures. However, investor confidence deteriorated sharply (#2 to #3, #3 to #4), briefly felt reassured (#4 to #5), and then plunged (#5 to #6).
By June 4, hedgers were the most bullish (0.85) they had been in sample, but investors were most bearish (0.16) in sample. That was the Tuesday after OPEC+’s disclosure of a plan to start to bring back some idled crude supply (maybe) in Oct-24. Investors’ overreaction to both demand and supply risks then punctured (Jun 5). The subsequent QS1 price rally ($701 to $783 per mt) has led investor psychology back closer to commercial reality (#7).
Source: ICE, Blacklight Research.
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