In July, crude oil prices recorded their largest monthly increase since January 2022, marking their best performance in nearly two decades. Earlier last week, due to the recovery of crude oil demand and the impact of OPEC+and Saudi Arabia's production cuts, oil prices reached a three-month high.
According to recently released economic data, the US economy has grown faster than expected, while inflation is also continuously decreasing. In recent weeks, an increasing number of fund managers believe that the US economy may achieve a soft landing. Despite the highest interest rates in 22 years in the United States, commodity related investments have once again become attractive.
Fund managers are becoming increasingly optimistic about the upward trend in crude oil prices, and market participants seem to have shaken off their pessimism. Over the past month, they have been scrambling to unwind their bearish positions in oil futures contracts. Hedge funds have reduced their short positions and added new long positions. This indicates that they expect the market's crude oil supply to become even more tight this summer.
Amidst easing concerns about the global economy, exchange traded funds tracking commodity indices experienced inflows in July, the first inflow after four consecutive months of outflows. According to data released by Bloomberg, 20 ETFs tracking commodity indices absorbed $361 million in funds in July, the only second month of this year to see such inflows. The last time funds flowed into commodity ETFs was in February.
Since the spring of 2022, funds have been flowing out of commodity related ETFs due to investors' concerns that aggressive interest rate hikes will lead to an economic recession. But recently, those investors and traders have begun to invest their funds in funds related to commodity indices, indicating that concerns about the economic recession have eased.
Analysts of J.P.Morgan Chase & Co wrote in a report earlier last week that in the entire commodity market, open position contracts reached a 13 month high as of the end of July. In terms of energy commodities, the open position contracts as of July 28th were $566 billion, while the total open position contracts in all commodity markets were $1.31 trillion
In the energy commodity market, the recent fundamentals of the crude oil market have been solid. Goldman Sachs analysts say that oil demand is stronger than expected. Global crude oil demand reached a record high in July, reaching 102.8 million barrels per day.
Based on the positions of hedge funds in the reporting week ending July 25th and the first four weeks, market participants are beginning to anticipate an increase in oil prices as Saudi Arabia unilaterally cuts production by 1 million barrels per day and plans to extend it until September. Saudi Arabia is making every effort to protect oil prices, which may mean we will soon see oil prices of $90 per barrel.
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