This file picture dated August 21, 2013 shows an oil well near Tioga, North Dakota. Opec’s decision at a November 27 meeting in Vienna not to reduce its output target of 30mn bpd prompted speculation that the group will let crude slide to a price that will slow US drilling.
Bloomberg/New York
Hedge funds finally pulled back from bets on higher oil prices as the market faced its worst year since 2008.
Speculators reduced their net-long position in West Texas Intermediate crude for the first time in four weeks, cutting their holdings by 5% in the week ended December 23, Commodity Futures Trading Commission data showed on Tuesday. Long wagers dropped the most since August.
Prices tumbled on Wednesday to the lowest level in more than five years as US output climbed and the Organisation of Petroleum Exporting Countries refused to make production cuts. The International Energy Agency and US Energy Information Administration cut their estimates of 2015 global fuel consumption this month amid expectations for slower economic growth outside the US
“The weak physical fundamentals have weighed on the market,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “Opec’s shift from a policy of supporting prices to one of protecting market share has also had a major impact.”
WTI rose $1.19, or 2.1%, to $57.12 a barrel on the New York Mercantile Exchange during the CFTC report period. The US benchmark grade dropped 85 cents, or 1.6%, to $53.27, the lowest settlement since May 1, 2009. Brent fell 57 cents to $57.33, bringing 2014 losses to 48%.
Opec’s decision at a November 27 meeting in Vienna not to reduce its output target of 30mn bpd prompted speculation that the group will let crude slide to a price that will slow US drilling.
The Paris-based IEA, which represents 29 industrialised countries, trimmed its 2015 global demand projection by 230,000 barrels from last month, according to a December 12 report.
“Traders just said enough is enough,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone. “They were tired of trying to guess the bottom of the market and missing. We don’t have a bottom yet and there’s still a ways to go.’”
The US pumped 9.14mn bpd in the week ended December 12, the most in weekly data that started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
Hedge funds had increased bets on rising prices to a record 356,336 futures and options in June as WTI climbed to a nine- month high.
The net-long position in WTI dropped by 10,784 contracts to 206,939 in the week ended December 23, the report showed. Long positions fell 5.1% while shorts decreased 5.6%.
The report was delayed because of the Christmas holiday last week.
For Brent crude, hedge funds and other money managers cut bullish bets by 15% to 112,886 contracts in the week ended December 23, data from the ICE Futures Europe exchange showed Tuesday. It was the first decline since before last month’s Opec meeting.
In other markets, bullish bets on gasoline retreated 0.6% to 49,136 contracts, the first decline in seven weeks. Futures increased 1.9% to $1.5704 a gallon on Nymex in the reporting period.
Retail gasoline, averaged nationwide, slid to $2.257 a gallon on Tuesday, the lowest since May 2009, according to Heathrow, Florida-based AAA, the largest US motoring group.
Bearish wagers on US ultra low sulphur diesel increased 1.6% to 24,500 contracts. The fuel advanced 1.6% to $1.9907 a gallon in the report week.
Net-long wagers on US natural gas fell 87% to 3,647.75 lots, the lowest since January 2012. 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 US Henry Hub contract.
Nymex natural gas dropped 12% to $3.171 per millions British thermal units during the report week.
The rise of the dollar against its counterparts has added to the downward pressure on both prices and investor interest, Citi Futures’ Evans said. The US currency climbed to a two- year high against the euro during trading on Tuesday, reducing the appeal of raw materials as a store of value.
The Bloomberg Dollar Spot Index climbed to the highest since March 2009 on December 23, while the Bloomberg Commodity Index dropped to the lowest since March 2009 on Wednesday.
“We sometimes forget that this has coincided with a significant strengthening of the US,” Evans said. “This makes portfolio managers want to hold US dollars instead of commodities.”