Hedge funds unwound bearish bets at the fastest pace in 10 months as fear of oil sinking to $20 a barrel faded.
A lot has happened since Goldman Sachs Group Inc. made that forecast a month ago. Some U.S. shale drillers have thrown in the towel after a year of maintaining supply in the face of plunging prices, saying they’ll pump less in 2016. Saudi Arabia, Russia and other large producers have frozen output and plan to meet later this month to discuss further measures to support prices.
"We might see the real bottom being behind us," Ed Morse, head of global commodity research at Citigroup Inc., said in a interview Friday with Bloomberg TV. "Eventually we’ll see U.S. supply falling."
Speculators reduced their short positions in West Texas Intermediate crude by 15 percent in the week ended March 1, according to U.S. Commodity Futures Trading Commission data. Futures gained 7.9 percent in the report week and have jumped 40 percent since hitting a 12-year low on Feb. 11. The front-month contract traded at $36.40 a barrel at 11:35 a.m. London time.
U.S. crude production fell for a sixth time in the week ended Feb. 26 to 9.08 million barrels a day, the lowest level since November 2014, according to the Energy Information Administration.
Apache Corp. said last month its oil and natural gas output will fall as much as 11 percent in 2016. Continental Resources Inc. projected a 10 percent cut and Whiting Petroleum Corp. a 15 percent reduction.
Members of the Organization of Petroleum Exporting Countries intend to meet with other producers between March 20 and April 1, Russian Energy Minister Alexander Novak said on Russian state television March 4. There hasn’t been a final decision on timing and location, according to Novak.
Saudi Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.
"Many people believe that we might have seen the worst of it," said Bart Melek, head of commodity strategy at TD Securities in Toronto. "We are seeing pretty significant declines in U.S. production. There is hope that soon an OPEC agreement will come."
The premium of December WTI puts over calls shrank Friday to the lowest level since Jan. 25, and a an index measuring volatility in the largest oil exchange-traded fund has dropped to the lowest in almost two months.
Speculators’ short positions in WTI fell by 25,639 contracts of futures and options combined to 150,718, the biggest decline since April 21, CFTC data show. Longs, or bets on rising prices, fell by 753. The exodus of bearish bets resulted in a 24,886-contract jump in the net-long position.
In other markets, net bearish wagers on U.S. ultra low sulfur diesel rose by 2,801 contracts. Diesel futures climbed 7.6 percent in the period. Net bullish bets on Nymex gasoline climbed 5,534 contracts as front-month futures gained 35 percent.
Prices climbed even as U.S. crude supplies increased by 10.4 million barrels in the week ended Feb. 26 to 518 million, according to the EIA. That’s the highest level since 1930.
"The market is ignoring the builds in U.S. supplies," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "The market is starting to realize that there will be a production freeze if not a cut. The mood has changed."
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