Investment Fund Activity Could Drive Down Oil and Gas Prices
Oil and gas may soon be in for another crash, as hedge funds begin withdrawing investment dollars they had parked with fossil stocks while they waited for prices to rise, Reuters market analyst John Kemp writes in an opinion piece this week.
“Hedge funds are running enormous net long positions in crude and gas even though prices have risen sharply in the last year,” Kemp writes. While “they may have reason to expect further price strength in 2017,” the fossil price recovery seems to have stalled out as U.S. shale companies ramp up production. That dynamic may push the funds to sell off some of their fossil investments and take the profits they’ve been waiting for—and when they do, prices might take a hit.
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Kemp’s post is written for financial professionals, but the upshot is that money managers have placed long-term bets on 960 million barrels of future oil production, for no obvious reason. “Whatever the cause,” he writes, “the build-up of large long (or short) positions in futures and options has normally preceded a sharp reversal in crude prices over the last two years.”
A similar dynamic is taking shape in natural gas markets, where Kemp says hedge funds have placed investments for about 2.32 trillion cubic feet of future production.