Tags: oil | crude | Saudi Arabia | OPEC

Speculators Cut Bullish Oil Bets as Skepticism of OPEC Grows

Monday, 10 November 2014 07:39 AM

Speculators are the least bullish on U.S. crude in 20 months as they lose faith in OPEC’s willingness to ease a global supply glut.

Money managers reduced net-long positions in West Texas Intermediate by 8 percent in the week ended Nov. 4, U.S. Commodity Futures Trading Commission data show. Long positions retreated to the least since May 2013 while short holdings rose.

WTI tumbled into a bear market this year as crude supply expanded from the U.S. to Libya and demand sputtered from Europe to China. Saudi Arabia cut its export charges to the U.S. this month, signaling a preference for market share over prices. The kingdom accounts for almost a third of OPEC’s output and the 12- nation group meets in about two weeks to debate supply.

“The market needs some OPEC action and the only thing we get out of the Saudis is the price cut to the U.S.,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Nov. 7 “That makes people think ‘Gee, this doesn’t look hopeful.’”

WTI fell $4.23, or 5.2 percent, to $77.19 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, the lowest level since Oct. 4, 2011.

Saudi Prices

Saudi Arabia reduced the premium of Arab Light to U.S. Gulf Coast benchmarks on Nov. 4 by 45 cents a barrel to the lowest level this year. Discounts for Medium and Heavy grades widened for a fourth month, according to Saudi Arabian Oil Co., the state oil company.

“The Saudis declared open warfare with the price cut,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone on Nov. 7. “Traders dumped those positions.”

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s oil supply, is scheduled to discuss output policy at a Nov. 27 meeting in Vienna. Its 12 members produced 30.974 million barrels a day in October, according to a Bloomberg survey, more than their collective target of 30 million.

OPEC cut forecasts on Nov. 6 for the amount of crude it will need to supply for most of the next two decades as the shale-energy boom in the U.S. lessens dependency on the group.

Brent for December settlement rose 47 cents to $83.86 a barrel on the London-based ICE Futures Europe exchange at 4:12 p.m. Sydney time. Prices slid for a seventh week through Nov. 7, the longest run of declines since November 2001, and are 24 percent lower this year. WTI added 41 cents to $79.06 a barrel.

Bearish Sentiment

“The sentiment is really bearish; $75 is the technical target,” Kyle Cooper, director of commodities research at IAF Advisors in Houston, said by phone Nov. 6.

In the U.S., oil production climbed to 8.97 million barrels a day in the week ended Oct. 31, the most in weekly data going back to 1983, according to Energy Information Administration estimates.

Drilling rigs targeting oil in the U.S. fell for the third time in four weeks, a signal that the price drop is causing some producers to scale back plans. The Eagle Ford shale formation in south Texas lost the most, dropping nine to 197 rigs, Baker Hughes Inc. said on Nov. 7.

The combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.

“We are still in bearish mode and we could go a little further downward,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC., said by phone Nov. 7. “We are still substantially below $80 a barrel.”

Net Longs

Net longs for WTI declined by 14,580 to 167,906 futures and options combined, the lowest since March 2013, while short positions increased 13,734 to 81,089.

In other markets, bullish bets on gasoline slid 1.6 percent to 30,587 contracts. Futures tumbled 5.4 percent to $2.078 a gallon on Nymex in the reporting period, the lowest since October 2010.

Bearish wagers on U.S. ultra low sulfur diesel decreased 14 percent to 30,737 contracts. The fuel fell 2 percent to $2.4427 a gallon in the report week.

Net-long wagers on U.S. natural gas almost tripled to 57,517 contracts. 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 jumped 13 percent to $4.129 per million British thermal units during the report week.

Oil rose to $78.65 on Nov. 7 after U.S. employment gains exceeded 200,000 for a ninth month and the jobless rate dropped to a six-year low.

“You’ve got to wonder how many people would be thinking, ‘Maybe we’ve hit the bottom, let’s go long now,’” Lynch said. “It’s the old adage: buy low and sell high. A lot of people don’t seem to implement it.”

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Speculators are the least bullish on U.S. crude in 20 months as they lose faith in OPEC's willingness to ease a global supply glut.
oil, crude, Saudi Arabia, OPEC
Monday, 10 November 2014 07:39 AM
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