Funds turn bullish for Brent and European distillates

London (Quantum Commodity Intelligence) - Funds built length in Brent and European distillate futures and options just before the surge in crude futures last week to near $75/b, as concerns over fresh Iranian barrels hitting the market subsided, the Commitment of Traders Report for the ICE exchange showed Monday.

The managed money category added around 19,000 long lots and cut almost 2,400 short lots in Brent futures and options over the week to June 15, leaving a net long position of 312,336 lots - up 21,500 lots to the biggest net long in six weeks.

Funds also added around 6,700 long lots and only 1,000 short lots to their holding in Low Sulfur Gasoil futures and options, taking the net long to 163,000 lots - extending a 3-year high as the speculative net length grew by 5,700 lots.

Due to a national holiday in the US on Friday, CFTC data for Nymex products, such as RBOB, WTI and Number 2 Heating Oil, will be published later on Monday.

With the chances of a quick fresh nuclear deal with Iran fading, Brent has found favour with funds over the last three weeks, who have added 53,800 lots of net-length to their holding in futures and options in June.

But this has yet to reverse the last three weeks of May when funds cut 58,000 lots of net-length.

Last Tuesday's net-length total of 312,266 lots in futures and options was still lower than volumes on May 4, and funds were still holding only four long lots to every short, a relatively low proportion.

In contrast, funds were holding almost 21 long lots to every short lot in Low Sulfur Gasoil futures and options last week.

Cracks for ultra-low sulfur diesel versus Brent in ARA still remain at historically low levels for Europe's most commonly used oil product, even though the barge cracks value has picked up from $3.50/b in March to a peak of over $6.50/b in early May, before sliding to $5.80/b on Friday, June 18.

The forward cracks curve is in wide contango, and on paper, ULSD barge cracks should improve around $4/b by January next year relative to Brent.