Funds retreat from Brent and charge into European distillates, shows CFTC

London (Quantum Commodity Intelligence) - Funds were bearish Brent and bullish European distillate futures on the ICE exchange last week, extending recent trends, data from the Commitment of Traders Report (CFTC) shows.

Money managers cut 14,452 long lots and added 6,285 short lots in Brent futures and options over the week to May 11.

The 20,737 loss in net length brought total net length under 300,000 lots for the first time in four weeks, and more than 50,000 lots lower than the year high of almost 350,000 lots on February 23.

Funds were left holding 385,312 long lots in Brent futures and options last week, down 28,926 lots since February 23.

Meanwhile, bearish sentiment has grown, with funds adding 24,025 short lots over the same period to take their total holding to 89,479 lots by last Tuesday.

Total open interest in Brent futures and options gained 58,371 lots over the week, and funds' share of open interest dropped to 9.37%, down from 10.22% a week earlier, despite the dollar index softening over the week.

Front-month Brent prices were slightly lower week-on-week, trading at $67.56/b at 16.30 UK time on May 11, down from $68.12 a week earlier.

In contrast to Brent, funds increased their share of open interest in Low Sulfur Gasoil futures and options to 14.24%, up from 12.44% a week earlier.

On April 20, funds only held 6.82% of total open interest in European distillate futures.

Money managers added 9,780 long lots and cut only 723 short lots in Low Sulfur Gasoil futures and options over the week to May 11.

Funds were left holding net-length of 138,368 lots by last Tuesday, split between 148,818 long lots and just 10,450 short lots.

Crack margins for Low Sulfur Gasoil futures versus Brent have been trending higher since the start of April, data from Quantum shows, and are expected to continue to climb throughout the year as demand for diesel continues to recover.

The front-month future's crack value climbed to $6.82/b on Friday, May 14, up from around $5/b at the start of April.

Data also shows expectations of European distillates strengthening relative to Brent throughout the year.

The crack value for December Low Sulfur Gasoil futures was $9.01/b versus February Brent on Friday.