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Alternative Market Briefing

CTAs' deleveraging is mostly over: Lyxor

Tuesday, November 20, 2018

Laxman Pai, Opalesque Asia:

In early November, CTAs' involvement in the oil prices demise was milder: they unloaded what they had left in crude futures, and kept only marginally long positions in heating and gasoline oil futures, said Lyxor in its Weekly Brief.

"CTAs' deleveraging dominated over October. In aggregate, we observe that their long held WTI and Brent positions were nearly fully cut by the end of October, along with about two-third of their long exposures to heating and gasoline oil," the weekly report from Lyxor's Cross Asset Research team said.

Financial de-hedging likely dominated in November, as oil prices breached levels at which producers had hedged their output.

"Based on a large sample of U.S. producers' reports, we estimate that their median hedged-production price stood around $61.5/b for WTI. It forced financial institutions, which had sold these hedging strategies, to adjust their own exposures accordingly," it said.

Selling pressure was all the more impactful as oil futures trading volumes plunged in November. Apart from CTAs, most multi-asset managers (including global-macro and risk-parity funds), had limited exposures to oil assets. "The lack of market breadth magnified the impact from CTAs and then financial institutions in our view," the team said.

Save another round of economic disappointment, CTAs' deleveraging is mostly over. Along with normalized investors positioning, selling pressure could fade. Some catalysts cou......................

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