An electricity failure and subsequent shutdown of a BP refinery in the US sparked an oil sell-off as hedge funds and other money managers sold the equivalent of 86m barrels in the six most important petroleum-related futures and options contracts over the past week, according to a report by Reuters.
The refinery in Whiting, Indiana — the largest in the US Midwest and BP’s largest globally — first opened in 1889 as part of John D Rockefeller’s Standard Oil Company and now produces 7% of all asphalt in the US, according to the oil company’s website, processing over 400,000 barrels daily. Its unexpected shutdown — which is expected to last up to three weeks, according to another report from Reuters — was caused by site-wide electricity failure at the start of the month.
As a result, surplus crude is likely to accumulate across the region — particularly around the NYMEX delivery point in Cushing, Oklahoma — according to the report. This contrasts with investors’ bullish bets since mid-January on depleting inventories in Cushing and a subsequent squeeze on deliverable supplies. Now, production shutdown has delayed further depletion and sent prices sliding.
The report notes that this is the third time since mid-2023 that fund managers have tried to build a bullish position, only to be forced to retreat as inventories remained above average. Now, bullish long positions outnumber bearish shorts by a ratio of 2.24:1 from 1.02:1 eight weeks earlier.
The report also attributes heavy sales of NYMEX, ICE WTI (-62m barrels, at the fastest rate since last October) and Brent (-23m) to fund managers expecting a significant increase in the amount of crude available. The combined position in WTI fell to a three-week low of 55m barrels, down from 117m barrels the previous week.
Despite the sell-off of US diesel (-7m) and gasoline (-11m), fund managers bought up European gas oil to the tune of 17m barrels, reflecting beliefs that Europe’s industrial recession is coming to an end, as are trade disruptions brought on by the Red Sea crisis.
Meanwhile, the net long position in gasoil futures and options increased to 50m barrels from 1m on 12 December 2023. Despite the disruption of fuel production brought on by the Whiting refinery, investors eschewed US gasoline and diesel futures in favour of realising profits on previous bullish long positions, after a period of bullish bets on the outlook for US fuels.
Elsewhere, hedge funds and other money managers sold the equivalent of 401bn cu ft in two major futures and options contracts linked to the price of gas at Henry Hub, a distribution hub on the natural gas pipeline system in Erath, Louisiana.
