(Bloomberg) -- Oil consumers posted one of the largest hedging additions on record when prices briefly fell below $70 a barrel last week.
The number of long contracts held by swap dealers on global benchmark Brent jumped by almost 50,000 lots last week, the most since March 2023 and the third-largest increase on record. For Europe’s diesel benchmark, swap dealer longs were the highest since 2020.
Swap dealer positions are often seen as a proxy for the hedges of industrial consumers like airlines and shipping companies, as they show where banks and other dealers lay off the risk they take on in over-the-counter trades.
Consumers generally buy derivatives that would profit from higher prices to protect against spikes in the cost of their real-world fuel bills. When the pandemic hit in 2020, many lost billions of dollars on those positions and have spent the years since rebuilding their hedge books as travel returned to normal.
Over-the-counter derivatives transactions and swaps flows all showed heavy volumes of consumer buying over the last couple of weeks, according to Nicky Ferguson, head of quantitative research at Energy Aspects Ltd.
Traders and brokers said that consumer activity picked up significantly on the drop in prices to the lowest level since 2021. In contrast, flows from producers were far more limited, they added.
The scale of consumer flows also showed up in moves on the price curve. A handful of longer-dated timespreads briefly dipped into a contango structure last week as consumer buying meant that prices further out were falling at a slower pace than those at the front of the curve.
--With assistance from Devika Krishna Kumar.
©2024 Bloomberg L.P.
