The Rising Hedge Fund Interest in the Oil Market
Introduction
Hedge funds are showing increasing interest in the oil market, with many betting on prices surpassing the $100 per barrel mark. This surge in hedge fund activity has contributed to the nearly 30% rally in oil prices since June. Various factors, including production and export cuts by Saudi Arabia and Russia, have fueled this rally. However, there is still debate about how high prices can go, with some experts suggesting that the upper limit may have been reached. In this article, we’ll explore the reasons behind hedge funds’ renewed interest in the oil market, the potential implications of this rally, and other important news from around the world.
Hedge Funds Joining the Oil Rally
Hedge funds have been drawn to the oil market following Saudi Arabia’s announcement that it would prolong its voluntary production curbs. This decision has reignited interest among hedge fund managers, who see an opportunity for prices to continue rising. Regulatory and stock market data show that hedge funds have been heavily involved in the recent surge, particularly in the past two weeks.
Ole Hansen, head of commodity strategy at Saxo Bank, explains that hedge fund interest has been rekindled by Saudi Arabia’s commitment to production curbs. However, not everyone shares the same optimism. Doug King, chief investment officer at RCMA Asset Management, believes that the rally may have reached its upper limit, cautioning that prices above $100 per barrel could lead to more barrels entering the market.
What’s Driving Oil Prices Higher?
Several factors have contributed to the rally in oil prices. Production and export cuts by Saudi Arabia and Russia have played a significant role, reducing the global supply and supporting prices. Additionally, the ongoing economic recovery has increased demand for oil, further bolstering prices.
Oil prices are also influenced by geopolitical factors. For instance, tensions in Ukraine following missile attacks by Russia have the potential to disrupt oil supplies and push prices higher. On the other hand, Syrian President Bashar al-Assad’s visit to China signals a potential collaboration between the two countries in the reconstruction of war-torn Syria.
Economic Factors to Consider
Apart from the oil market, there are various economic indicators to watch. Economists expect existing home sales in the United States to have risen in August. Additionally, new claims for state unemployment aid, seen as a gauge of job losses, are projected to have increased to 225,000 last week.
Darden Restaurants, a US chain that operates popular brands like Olive Garden, will be reporting its latest quarterly earnings. These results will provide insights into the recovery and performance of the restaurant industry amid ongoing challenges.
Market Reaction and Global Developments
The recent decision by the Federal Reserve to leave its benchmark rate unchanged and its prediction of further monetary tightening in 2023 have had notable effects on the market. The two-year US Treasury yield reached a 17-year high, while the S&P 500 and Nasdaq Composite saw declines in response to the news.
In other news, the de facto ruler of Saudi Arabia, Crown Prince Mohammed bin Salman, emphasized the importance of Palestinians in any deal that normalizes Saudi-Israeli ties. He also warned that Riyadh would develop its own nuclear warhead if Iran acquired atomic weapons.
Furthermore, recent IPOs of Arm and Instacart have seen a decline in their stock prices, signaling potential challenges facing these companies in the market. Poland’s decision to cease sending weapons to Ukraine has escalated tensions between the two countries and could affect Western support for Ukraine against Russia.
The UK car industry is also facing developments related to electric vehicle (EV) sales targets. Despite the Prime Minister’s announcement of a delay in the ban on petrol and diesel car sales, mandatory EV sales targets are still set to be implemented from January 2022.
The Relevance of Wealth Taxes
Beyond these specific news items, it’s essential to consider broader economic trends and ideas, such as the introduction of wealth taxes. While proposals for taxing the investments of the wealthy in the US, previously popular in the political discourse, face challenges in Congress, the concept of wealth taxes continues to gain public support. Aging populations and changes in the workforce have highlighted the need for alternative sources of tax revenue, making wealth taxes a potential solution.
Conclusion
Hedge funds are increasingly participating in the oil market, betting on prices to reach $100 per barrel. Factors such as production cuts by Saudi Arabia and Russia, coupled with an economic recovery and geopolitical tensions, have driven the recent rally in oil prices. However, experts differ on how high prices can go, with some suggesting that the upper limit has been reached.
In addition to the oil market, there are several other economic indicators and global developments to monitor, including existing home sales, unemployment claims, corporate earnings, and geopolitical issues. The recent decision by the Federal Reserve, Saudi Arabia’s stance on Palestinian involvement in normalization deals, and Poland’s decision to halt weapon shipments to Ukraine are all significant events in the global landscape.
Furthermore, wealth taxes are gaining renewed attention as a potential solution for generating tax revenue in the face of demographic changes and economic shifts. While there are obstacles to implementing such taxes, their appeal to the public suggests a need for further exploration of alternative taxation models.
In summary, the oil market, economic data, global developments, and wealth taxation represent important areas of interest and concern. Staying informed about these topics can help individuals and businesses navigate the complexities of the current economic landscape.
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Good morning.
Hedge funds are piling into the oil market and betting that prices will soon surpass $100 a barrel, adding momentum to a rally sparked by production and export cuts by Saudi Arabia and Russia.
Regulatory and stock market data suggests hedge fund positioning has exacerbated the nearly 30% rally in prices since June, with a surge in buying accelerating in the past two weeks for both Brent and U.S. crude futures .
Ole Hansen, head of commodity strategy at Saxo Bank, said hedge fund interest in oil had been reignited by Saudi Arabia’s announcement earlier this month that it would maintain voluntary production curbs more longer than previously thought.
But Doug King, chief investment officer at RCMA Asset Management, said he was not convinced the rally would take the price much higher.
“In my opinion we are approaching the upper limit of this movement, as if we get above $100 a barrel, I suspect we will see more barrels leaking into the market.” Here’s more on what’s driving oil prices higher.
Here’s what else I’m keeping an eye on today:
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Zelenskiy in Washington: American President Joe Biden will host Volodymyr Zelenskyy at the White House. The Ukrainian president will also meet with lawmakers on Capitol Hill, but before his diplomatic day, Russia has launched missile attacks across Ukraine.
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Assad in Beijing: Syrian President Bashar al-Assad visits China for the first time since the outbreak of civil war in his country 12 years ago. He should seek the support of President Xi Jinping in the reconstruction of his war-ravaged country.
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Economic data: Economists expect existing home sales to have risen in August. New claims for state unemployment aid in the United States, seen as a gauge of job losses, are expected to have risen to 225,000 last week, up from 220,000 the previous week.
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Results: Darden Restaurants, which operates US chains including Olive Garden, reports its latest quarterly earnings.
Join Martin Wolf, FT China watchers and UBS China economist Tao Wang for a members-only webinar on China’s economic slowdown today at 11:00 GMT +1. Register for free here.
Five more important stories
1. The two-year U.S. Treasury yield hit a 17-year high after the Federal Reserve left its benchmark rate unchanged, but officials predicted more monetary tightening in 2023. In a choppy session for stock markets, Wall Street’s benchmark S&P 500 closed 0.9% lower and the tech-heavy Nasdaq Composite lost 1.5%. Read more about the market reaction to the latest interest rate decision.
2. Palestinians would be “very important” in any deal that normalizes Saudi Arabia’s ties with Israel, said the de facto ruler of the kingdom. Crown Prince Mohammed bin Salman also warned that Riyadh would secure its own nuclear warhead if rival Iran acquired an atomic weapon. Here’s more from his first interview with a US TV channel since 2019.
3. Shares of recently listed Arm and Instacart are down more than a fifth from their highs. Shares of the chip designer have fallen more than 4% for four consecutive days, while shares of the online grocery platform closed yesterday just 10 cents above its initial public offering price. Here’s how weak performance could threaten the IPO recovery.
4. Poland will no longer send weapons to Ukraine, said Polish Prime Minister Mateusz Morawiecki, in an escalation of tensions between Warsaw and Kiev that threatens the West’s unity in supporting the country as it fights Russia’s invasion. The dispute has flared up ahead of next month’s elections.
5. The UK car industry will still need to meet mandatory EV sales targets from January, according to people briefed on the government’s upcoming rules. The targets remain despite Prime Minister Rishi Sunak’s announcement yesterday that the UK’s ban on the sale of petrol and diesel cars would be delayed from 2030 to 2035. Here’s more on the car industry’s reaction to Sunak’s policy change.
Deep dive
On the political level, plans to introduce wealth taxes appear to be encountering difficulties. A US proposal to tax the investments of the wealthy is unlikely to pass through Congress, Britain’s Labor Party this year renounced its commitment to the tax, and France abandoned its wealth tax in 2018. But with the aging population that shrinks the workforce and limits tax revenue from wages, economists and activists say the idea – which tends to gain broad public support – is due to a rebirth.
We are also reading. . .
Chart of the day
An exceptionally large wheat harvest in Russia has pushed prices to three-year lows, even as inflation is pushing the cost of other agricultural products such as cocoa and coffee to multi-year highs. “Ukraine’s loss was Russia’s gain,” said one commodities analyst. And that’s why traders are betting that the trend will continue.
Take a break from the news
Latin reggaeton superstar J Balvin has it collaborated with Australian-born museum director Melissa Chiu to bring art – and mental health awareness – to Gen Z.
Additional contributions from Tee Zhuo and Benjamin William
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