Gasoil and ULSD flip net short as CTA selling intensifies

CTA selling has driven Gasoil and ULSD into net short territory while deepening bearish positioning across distillate time spreads.

The CTA sell-off across crude and refined products that began a week ago and continued earlier this week has accelerated over the past two trading sessions. The broader market appears to be increasingly pricing in some form of US-Iran agreement, while physical tightness has eased amid record US crude exports, continued UAE flows via Hormuz, and refinery run cuts. Market participants may also be assigning a higher probability to scenarios involving the return of sanctioned Russian, Iranian, or Venezuelan barrels. Nevertheless, our balances indicate pronounced tightness in crude markets over summer.

Crude: CTA selling accelerates as market prices easing supply risks

In Brent, Trend-following CTAs reduced exposure by ~35,668 lots between May 20-27. On May 29, a further ~26,751 lots were sold, pushing Trend position to 36% long for the first time since Apr 23. Reversion CTAs have been 86% short since May 20. Additional Trend CTA selling is not imminent, with the nearest sell trigger level at $86.00/bbl (~8,917 lots) as of May 29.

In WTI, Trend-followers de-risked from 91% long (May 25) to 55% long (May 27), selling ~15,700 lots. On May 29, ~3,925 longs were unwound, and ~7,850 shorts were added, leaving net position at 27% long, the lowest in 14 weeks. Reversion CTAs have maintained a 71% short stance since May 22.

CTA activity has been even more pronounced in time spreads. Positioning in Brent and WTI M1/M2, M1/M3, and M2/M3 structures turned net short this week, reaching -37.5% in Brent and -12.5% in WTI, reinforcing the recent weakening in backwardation.

Brent time spreads and CTA positioning

Source: Kpler Financial Flows

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