Hedge Funds Cut Oil Bets After Worst Drop Since 2008
Hedge funds reduced bets on rising oil prices for a second week as futures extended their worst plunge since 2008
.
Speculators pared their net-long position
in West Texas Intermediate crude by 3.6 percent in the week ended Dec.
30, U.S. Commodity Futures Trading Commission data show. Short wagers
jumped 12 percent, the first gain in six weeks.
The U.S.
benchmark price sank 46 percent last year as domestic oil output reached
a three-decade high and OPEC produced more than its target for a
seventh month. The International Energy Agency has cut its estimate for
global demand as economies outside the U.S. are expected to grow more
slowly, adding to a supply glut.
“You had the combination of weak fundamentals and a shift in market psychology,” Michael Lynch,
president of Strategic Energy & Economic Research in Winchester,
Massachusetts, said yesterday. “People realized that there’s no imminent
market tightness, and this caused big selloffs.”
WTI fell $3,
or 5.3 percent, to $54.12 a barrel on the New York Mercantile Exchange
in the period covered by the CFTC report. Futures declined $2.09, or 4.2
percent, to $47.95 a barrel at 12:21 p.m. after sliding to $47.74, the
lowest since April 2009.
U.S. crude production
was 9.12 million barrels a day in the seven days ended Dec. 26 after
reaching 9.14 million two weeks earlier, the highest in weekly
government data since 1983.
Global Production
Crude stockpiles in the U.S. were 385.5 million barrels as of Dec. 26, while gasoline supplies increased to 229 million, the highest seasonal levels in weekly Energy Information Administration data.
Russian
oil production rose 0.3 percent in December to a post-Soviet record of
10.667 million barrels a day, according to preliminary data e-mailed by
CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels
a day in December, the most since the 1980s, Oil Ministry spokesman
Asim Jihad said.
“The consistent production around the world is overwhelming demand,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “It looks like prices will keep making new lows.”
The
nation’s oil boom has been driven by a combination of horizontal
drilling and hydraulic fracturing, which have unlocked supplies from
shale formations including the Eagle Ford and Permian in Texas and the
Bakken in North Dakota.
Saudi Prices
“Everybody is producing as much oil as they can,” said Tariq Zahir,
a New York-based commodity fund manager at Tyche Capital Advisors.
“With the shale revolution flooding the market with oil and OPEC not
cutting at all, the market is fundamentally weak.”
The
Organization of Petroleum Exporting Countries, which pumps about 40
percent of the world’s oil, produced 30.24 million barrels a day in
December, according to a Bloomberg survey. The group decided to maintain
its output quota at 30 million barrels a day at a Nov. 27 meeting in
Vienna.
Saudi Arabia, the world’s biggest oil exporter, raised
its price yesterday for February deliveries of Arab Light to Asia from
the biggest discount in at least 14 years. The price cut last month was
followed by Iraq, Kuwait and Iran, prompting speculation that Middle
East producers were protecting market share.
“The Saudis refuse
to cut and lose market share, to prop up prices for the rest of the
world,” Hiley said. “As the price goes down, it doesn’t mean production
goes away.”
Natural Gas
Net-long positions for WTI
dropped by 7,551 to 199,388 contracts of futures and options in the week
ended Dec. 30, according to the CFTC. Long positions fell 0.4 percent
to 259,613 and short bets climbed to 60,225.
In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 11 percent to 27,087 contracts as the fuel sank 6.1 percent to $1.8688 a gallon.
Wagers
on U.S. natural gas swung to net short position of 12,130 contracts in
the week ended Dec. 30 from net long of 3,648 in the previous week. 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 dropped 2.4 percent to $3.094 per
million British thermal units.
Bullish bets on gasoline tumbled 10 percent to 44,226. Futures slumped 7.4 percent to $1.4537 a gallon on Nymex in the reporting period.
Regular
retail gasoline dropped 0.5 cent to an average of $2.194 yesterday, the
cheapest since May 2009, according to Heathrow, Florida-based AAA, the
country’s largest motoring group. U.S. drivers may save as much as $75
billion at gasoline pumps in 2015, AAA said on Dec. 31.
“People realized how bearish the fundamentals are,” said Phil Flynn,
senior market analyst at the Price Futures Group in Chicago. “It’s
probably the worst of times for hedge funds. For drivers, it’s
probably the best of times.”
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probably the best of times.”
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