Geopolitical risk is dropping, is now a good time to buy?

NYMEX and ICE WTI data show that hedge funders were net sellers of crude oil for the week ending January 14. Funds sold roughly 99 million barrels in the six primary crude futures and options contracts. With funds less focused on geopolitical tensions in the Middle East, concerns are rising about the status of the global economy.

NYMEX and ICE WTI Data

Hedge funds had scooped up more than 530 million barrels of crude since mid-October. In the five most recent weeks, buying ramped up to the tune of nearly 350 million barrels. But the selloff started last week with the unloading of 64 million barrels.

Funds were sellers of 16 million diesel contracts and 23 million Euro gasoil contracts.

That said, NYMEX data shows that fund managers are still long in middle distillates.

The selloff comes at a time when the U.S. and China reached a Phase One deal on trade. In the U.S., housing starts hit a 13-year high, while job openings fell by 561,000 to 6.8 million in November. With the U.S. approaching full employment, it appears less likely that the U.S. will experience a recession this year.

However, China’s economy grew at just 6.1% last year. That figure was the weakest in roughly three decades. Economists and Wall Street analysts are not expecting expansion in China to bounce back sharply. Deutsche Bank analyst Christian Nolting said that Chinese GDP might fall below 6% this year. The IMF puts China’s growth at roughly 6% in 2020 and 5.8% in 2021.

The People’s Bank of China has been pumping capital into the economy through medium-term lending facility loans. Still, the central bank held its one-year loan prime rate at 4.15%. Markets had expected that the central bank would slash that rate by 5 basis points.

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