Tags: Funds | Crude | Price Wagers | OPEC

Funds Cut Bullish US Crude Wagers Before OPEC Price Rout

Tuesday, 02 December 2014 09:17 AM

Oil speculators made the right call in the run-up to the OPEC meeting last week.

Money managers reduced bullish bets on U.S. crude by 7.5 percent to the smallest in almost two years before OPEC’s refusal to cut production sent prices tumbling to the lowest since 2009, U.S. Commodity Futures Trading Commission data show. Long holdings sank while short wagers increased in the week ended Nov. 25.

The Nov. 27 decision by the Organization of Petroleum Exporting Countries to maintain its output signaled the group will let producers in the U.S. and other countries curb production first in response to a global surplus. OPEC resisted calls from members including Venezuela and Iran to reduce its target of 30 million barrels a day when it met in Vienna.

“The money managers were reducing their length as they interpreted OPEC comments going into the meeting leaning toward inaction rather than actively seeking a production cut,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said. “OPEC could do something or do nothing, and many in the market began believing they were going to do nothing.”

WTI fell 64 cents to $68.36 a barrel at 8:33 a.m. on the New York Mercantile Exchange, down from $74.09 at the end of the CFTC report period.

Shale Boom

Oil has collapsed into a bear market as the shale boom has seen U.S. output surge to 9.08 million barrels a day in the week ended Nov. 21, the most in weekly Energy Information Administration data that began in 1983.

Current prices are no guarantee of a significant decline in U.S. shale output, Iran’s Oil Minister Bijan Namdar Zanganeh said in a Nov. 28 interview.

The net-long position in WTI declined by 13,042 to 162,009 futures and options in the week ended Nov. 25, the least since Jan. 4, 2013. Long positions dropped 0.5 percent and short positions surged 16 percent.

This report “captures the market at the cusp of a major change,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said. “There was a strong feeling that OPEC would make a cut until a day or two before the meeting.”

For Brent crude, hedge funds and other money managers raised bullish bets 7.9 percent to 65,973 contracts in the week ended Nov. 25, according to data from the ICE Futures Europe exchange. The North Sea crude collapsed as much as 8.4 percent two days later, the steepest drop since May 2011.

Other Markets

In other markets, bullish bets on gasoline increased 1.1 percent to 39,747 contracts, the most since July 15. Futures decreased 0.6 percent to $2.0318 a gallon on Nymex in the reporting period.

Retail gasoline, averaged nationwide, slid to $2.769 a gallon Nov. 30, the lowest since October, 2010, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Bearish wagers on U.S. ultra low sulfur diesel decreased 5.1 percent to 22,367 contracts. The fuel climbed 0.6 percent to $2.3948 a gallon in the report week.

Net-long wagers on U.S. natural gas advanced 11 percent to 104,268 lots, the highest since Sept. 30. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Nymex natural gas rose 3.8 cents to $4.282 per million British thermal units during the report week.

Geopolitical Instability

Futures climbed in March when Ukraine mobilized its army reserves in response to Russia, the world’s biggest energy exporter, seizing the Black Sea region of Crimea. Violence between pro-Russian separatists and Ukrainian government troops has killed more than 4,300 people.

WTI then surged to a nine-month high of $107.73 in June when the Islamic militants captured the northern Iraqi city of Mosul. Prices retreated as the advance stalled before reaching Baghdad and the bulk of the country’s oil fields, which are in the south.

“The only events that can quickly change market sentiment are an OPEC policy decision or a geopolitical crisis, which is something you can’t predict,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The chances of a bullish surprise from OPEC are now in the rearview mirror, so the only way oil’s going to turn around quickly is for a geopolitical crisis to occur.”

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Oil speculators made the right call in the run-up to the OPEC meeting last week.
Funds, Crude, Price Wagers, OPEC
Tuesday, 02 December 2014 09:17 AM
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