Hedge funds have substantially increased their bullish wagers on US gasoline, marking the fastest pace of accumulation since March and indicating a six-month high in net positioning. This reflects growing concerns about persistently high fuel costs, particularly as inventories remain tight and global supply disruptions continue. The strategic shift by these major investors suggests an expectation that gasoline prices will either maintain current high levels or climb further in the near future.
This bullish sentiment is underpinned by several factors contributing to a squeeze in refined product supplies. Gasoline inventories in the US have fallen by 2.536 million barrels in the week ending August 21, exceeding expectations and leaving stocks 6% below the five-year average. Additionally, strikes targeting Russian refineries have reduced their operational capacity to multi-year lows, removing significant volumes of refined product from the global market. Geopolitical risks in key energy chokepoints, including the Black Sea and Middle East routes, further exacerbate supply concerns.
The situation for gasoline is closely linked to the diesel market, where hedge funds have also adopted their most optimistic stance in six months. While gasoline supplies are somewhat less strained than diesel, there's a production trade-off in refineries: pushing for more diesel often leads to reduced gasoline output. This interconnectedness means both fuels are experiencing price pressure. US diesel futures have seen gross long positions reach their highest point since the initial week of the US-Iran conflict, reflecting a real-world supply problem rather than just speculative trading. Distillate inventories, which include diesel, remain very low, at 13% below the five-year average, further contributing to overall product tightness.
Analysts note that while increased crude flow through the Strait of Hormuz might address crude availability, it doesn't directly alleviate the tightness in refined products. The core issue remains refining capacity and product availability. Hedge funds' significant rotation into bullish fuel bets, including the most optimistic bets on US gasoline since March, suggests that elevated prices are likely to persist, impacting consumers through higher transportation costs, heating bills, and ultimately, inflation on goods that rely on diesel for transport.
