Hedge funds slashed their bets on falling oil prices, leaving them the most bullish in two months as OPEC called for a return to US$80 crude.
Money managers’ net-long position in West Texas Intermediate rose by 14,821 contracts to 147,678 futures and options in the week ended on Tuesday last week, according to data from the Commodity Futures Trading Commission (CFTC). That was the highest level since July 7.
OPEC expects crude prices to rise to US$80 by 2020 as output falls elsewhere. US production could sink by the most in 27 years next year as the price rout extends a slump in drilling.
Speculators closed out short positions two days before the Federal Reserve decided not to raise key US interest rates.
“The market’s not as oversupplied as we think it is,” David Pursell, a managing director at investment bank Tudor Pickering Holt & Co in Houston, said in a telephone interview. “The news out of OPEC is more bullish, US production is falling and demand is great right now.”
The US benchmark oil contract fell 2.9 percent in the report week to US$44.59 a barrel on the New York Mercantile Exchange.
OPEC expects crude prices to rise by about US$5 a year through 2020. Production from nations outside the group is expected to be 58.2 million barrels a day in 2017, 1 million lower than previously forecast, according to an internal report.
The impact of low prices is “most apparent on tight oil, which is more price reactive than other liquids sources,” the report said.
US output could sink by 400,000 barrels a day next year after a prolonged period of low prices forced producers to idle more than half the rigs seeking oil, the International Energy Agency said in a monthly report.
That would be the largest one-year decline since 1989, according to US government data.
“There is quite a discernible shift in sentiment because production declines are quite high,” Amrita Sen, chief oil market analyst for Energy Aspects Ltd in London, said by telephone.
“There’s a realization that US production is rolling over,” Sen said.
Money managers reduced short positions, or bets that prices will fall, by 14,569 contracts, CFTC data showed. Long positions, or bets on rising prices, increased by 252 contracts.
In other markets, net bullish bets on NYMEX gasoline rose 3.5 percent to 16,562, CFTC data showed.
Net bearish wagers on US ultra low sulfur diesel expanded by 12 percent to 28,057 contracts.
The Fed decided not to increase rates for the first time in almost a decade as Federal Reserve Chair Janet Yellen said slower growth in China, the second-biggest oil-consuming nation after the US, contributed to volatility across markets and that overall financial conditions have tightened.
“By Tuesday, money managers were closing out their short positions because of the expectation that the Fed would leave rates unchanged, which they worried would mean the [US] dollar stays weaker and commodity prices rise,” Andy Lipow, president of Lipow Oil Associates LLC, said by telephone from Houston, Texas.
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