Energy-Related Futures Surge as Some Profit-Taking Investors Exit Positions

Securities Times Reporter Shen Ning

Affected by the Middle East situation, the international crude oil market has recently experienced volatile gains, leading to a collective surge in domestic energy and chemical futures. In this upward trend, a number of institutional and individual investors who followed the momentum have gained substantial profits. However, the rally also faces uncertainties, and some investors have chosen to temporarily exit the market.

“We started buying crude oil at the end of January this year. When we saw the U.S. begin deploying aircraft carriers to the Middle East, we felt a potential geopolitical conflict might occur, which caused crude oil to lead the market,” said Shen Ran, founding partner of Hainan Jiayue, in an interview with Securities Times.

In addition to crude oil futures, Shen Ran’s fund also bought container shipping index (European line) futures at low levels, resulting in significant gains during this rally. However, after a sharp increase, he has partially reduced his positions at high levels to lock in most profits. He believes there is considerable uncertainty in the current market, with a low probability of the Strait of Hormuz being blocked long-term, which is not in anyone’s interest, but short-term fluctuations are still possible.

On March 12, domestic energy and chemical futures showed strong performance, with several contracts hitting daily limit-ups. By the close in the afternoon, the main crude oil futures contract SC2604 rose by 11.26%, closing at 722.3 yuan per barrel; low-sulfur fuel oil, para-xylene, PTA, and bottle chip futures also rebounded strongly, with gains exceeding 10%.

Data on the domestic commodity market performance since March shows that this round of energy and chemical commodities has risen at an astonishing pace. As of March 12, in just nine trading days, crude oil futures increased by a total of 49%, low-sulfur fuel oil futures surged by as much as 64%, and many other energy and chemical products also gained over 30%. With about five times leverage, the margin returns for long positions in related commodities have exceeded 2 times.

According to industry sources, the explosive growth of crude oil and other commodities has significantly driven some futures companies’ client account openings, and some individual investors have also gained good returns by going long on related products.

“Individual clients usually prefer to go long, which makes it easier for them to profit during an upward market. So, some of our personal clients have very high returns. Additionally, recently, institutions engaged in asset allocation are mainly long on energy and chemical commodities, so most are also profitable. The main pressure comes from some industrial clients’ hedging positions, which are showing unrealized losses on one hand, and facing margin calls on the other,” said a relevant person from a futures company.

In fact, data from futures trading competitions also reflect investors’ trading situations more intuitively. The Securities Times reporter observed on the Daqiangao website that participants generally showed net profits in crude oil, fuel oil, and other products. The sharp market fluctuations on Tuesday once caused large single-day losses for some participants, but in the past two trading days, as the market rebounded, their profits have been restored.

Shen Ran advises that investors without core positions should not participate in crude oil-related trading at this time, as short-term unexpected volatility can occur at any moment. In the long term, the relatively loose global monetary environment will boost the valuation of strategic commodities. Therefore, he remains optimistic about gold and some non-ferrous metals.