Portfolio investors were encouraged to return to the oil market early last week by the prospect of production cuts by OPEC and its allies, which offset some bearishness induced by the prospect of an imminent recession.

Hedge funds and other money managers purchased the equivalent of 62 MMbbl in the six most important petroleum futures and options contracts in the week ending Oct. 4., according to regulators' records.

Fund buying concentrated on crude (+46 MMbbl) rather than fuels (+15 MMbbl) and came ahead of a decision by OPEC+ on Oct. 5 to cut the group's combined output allocations by 2 MMbbl/d.

Portfolio managers purchased Brent (+27 MMbbl), NYMEX and ICE WTI (+19 MMbbl), European gas oil (+6 MMbbl), U.S. diesel (+6 MMbbl) and U.S. gasoline (+4 MMbbl).

Buying was concentrated in the contracts which had seen the heaviest sales since the summer amid expectations that petroleum consumption will be hit by an impending recession.

As a result, the combined crude position climbed to 360 MMbbl (18th percentile for all weeks since 2013) up from 314 MMbbl (10th percentile) the previous week.

The combined distillate position increased to 56 MMbbl (45th percentile) from 45 MMbbl (40th percentile) the week before.

Market talk and pre-meeting briefings by officials about a reduction in allocations seem to have lifted hedge fund positions in advance of the formal OPEC+ decision.

The number of short positions across all six contracts fell by 26 MMbbl, one of the largest reductions this year, while long positions increased by 36 MMbbl.

In consequence, bullish positions outnumbered bearish shorts by 4.63:1 (58th percentile) up from 3.63:1 (40th percentile) on Sept. 27.

Reduced output allocations have blunted the bearish momentum building up in the market and encouraged at least some fund managers to rebuild positions in anticipation of renewed tightness and higher prices.