Funds have been net buyers in seven of the last eight weeks, adding a total of 188 million barrels to their positions since Aug. 24, according to records compiled by exchanges and regulators.
The most recent week saw buying in NYMEX and ICE WTI (+23 million barrels), U.S. gasoline (+8 million) and European gas oil (+9 million), but sales of Brent (-24 million) and U.S. heating oil (-7 million).
Most of the increase came from creation of new bullish long positions (+11 million barrels), which outnumbered the establishment of new bearish shorts (+1 million), indicating funds still expect prices to rise further.
Portfolio managers have amassed a net long position of 865 million barrels across all six contracts (77th percentile for all weeks since 2013) with long positions outnumbering shorts by almost 7:1 (86th percentile).
Bullish long-short ratios are led by middle distillates (97th percentile) and crude (79th percentile) while gasoline is less stretched (72nd percentile).
The distribution is not surprising, since distillates are best placed to benefit most from strong demand from the manufacturing and freight transport sectors, as well as any fuel-switching this winter as a result of record high gas prices in Europe and Asia.
Portfolio managers remain bullish about the potential for price increases even though crude oil prices have already climbed significantly.
Front-month Brent futures have risen by more than 22% over the last two months, a rate of increase in the 95th percentile for all similar periods since 1993.
But traders expect producers will continue to restrict output, leaving it lagging growth in consumption, lowering oil inventories even further in the months ahead.
On Oct. 23, Saudi Arabia's energy minister warned oil producers could not take the rise in prices for granted because of continuing risks to consumption from the pandemic.
Brent's six-month calendar spread has swung into a steep backwardation of more than $5.50 per barrel, in the 99th percentile, implying inventories are expected to become exceptionally low.
The combination of rapidly escalating spot prices and a steep backwardation is consistent with the market approaching a cyclical peak, which also increases the risk of an eventual pullback.
The rate of new buying each week is slowing, probably in response to the rise in prices already, reducing the amount of fresh fuel to propel the rally higher.
For now, however, most fund managers are still betting prices have further to climb before producers increase output or they succumb to profit-taking.
(Editing by David Evans) ((firstname.lastname@example.org))