We start with crude oil, where positions in crude oil futures have returned to Covid-19 pandemic levels, which we believe is overly bearish. The economy is normalizing with rising travel and growing consumer energy demand. Despite this, the futures market’s bearish sentiment seems misaligned with these positive economic indicators. Current futures levels appear far too pessimistic.

Looking at macro hedge funds’ three-month beta to Oil, it has been steadily increasing since the beginning of 2024, but at relatively low levels. This suggests that they are either starting to buy inflation-protected assets or short on inflation-sensitive assets. 

This indicates that the market is beginning to realize that OPEC will do everything to keep the market tight and that demand is not as weak as some might suggest, which looks like a decent energy risk/reward to us.

Chart 1.a: Futures markets not in love with crude oil