Funds cut net-length in European distillates, Brent and WTI

Quantum Commodity Intelligence - Concerns over the prompt length of the global distillate market have surfaced in the Commitment of Traders Reports with funds cutting bullish bets in both European distillate futures and options and Brent on the ICE bourse for the first time in three weeks, and also in WTI on Nymex for the first time in five weeks.

Dollar strength over the week added to the reduction in positions, but funds also added short positions in Low Sulfur Gasoil futures for the second week running.

Before June 15, funds had cut shorts for seven weeks in a row.

Crude futures have rallied in June and backwardation in the nearby Brent curve has widened amid OPEC+ discipline to maintain production targets.  

But speculative net-length last week dropped around 10,300 lots in Low Sulfur Gasoil futures and options, 2,500 lots in Brent and 2,750 lots in WTI over the week to June 22.

After a surge in May, cracks for diesel barges in ARA have dropped from around $6.50/b at the start of June to $5.22/b on Friday, according to Quantum data.

Cracks for diesel barge swaps between July and December have also been drifting lower since June 16.

Bulls have favoured Low Sulfur Gasoil futures so far this year, building up long lots from under 100,000 in early January to 166,600 last Tuesday, despite a drop of 4,891 lots last week.  

Length in Brent nudged another 3,000 lots higher last week, but long positions have only recovered to levels in February and the first half of March.

Funds added more shorts, around 5,500 lots, in Brent futures and options last week than longs lots.

There was a similar pattern in WTI, where funds added around 3,200 long lots but also 6,000 short lots last week.

Meanwhile, funds saw more upside in RBOB gasoline futures and options on Nymex, increasing speculative net-length by 8,270 lots over the week to June 22, the first rise since May 18.

But net-length was still around 7,700 lots lower than May 18.