(Bloomberg) -- Money managers added to bets against gasoline and diesel, as US President Donald Trump’s trade policy threatens economic growth and consumer confidence.
Speculators ramped up short positions in Europe’s diesel market, bringing the overall net position in ICE Gasoil contracts to the most bearish in 18 weeks. They also now hold the biggest short-only position in US gasoline futures and options since 2017.
The shift comes as the Organisation for Economic Co-operation and Development cut its global growth projection and as US consumer sentiment fell to a more than two-year low, illustrating growing apprehension about the economic impact from trade tariffs.
Those measures have also helped spark divergent positions in benchmark Brent and West Texas Intermediate, with funds cutting net-bullish wagers on the former but boosting them on US oil.
See also: Hedge Fund Bets on WTI, Brent Diverge as Trade War Roils Markets
Diesel demand is closely tied to economic activity, so any threats from Trump’s trade tariffs — and reciprocal measures — add to bearish market sentiment. In the US, weaker consumer sentiment has already underscored the risk to the growth outlook in the world’s largest economy. The uncertainty has battered sentiment across markets, with the S&P 500 index trading about 8% below its high for the year.
“Growth concerns are likely a factor,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. “Diesel demand was weak already last year and weak industrial activity isn’t helping on the demand side.”
Meanwhile, peace talks geared toward ending the war in Ukraine could ultimately result in oil sanctions on Russia — one of the world’s biggest diesel exporters — being lifted. While there’s little sign that Europe would immediately resume buying Russian supplies, it could further erode a geopolitical risk premium in oil prices. A seasonal winding down of regional heating oil demand could also act as a drag on diesel prices.
Traders have also been betting against diesel futures in the US, which are on the cusp of seeing bearish wagers outpace bullish ones. Money managers posted the first back-to-back reductions in net longs for the CME’s heating oil contracts since December.
Inventories of gasoline in the US are also currently above their seasonal average level, another reason for bearish wagers in that market.
--With assistance from Rachel Graham and Nathan Risser.
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