Saudi squeezes hedge funds with bear­ish bets on oil

Kuwait Times - - BUSINESS -

Saudi Ara­bia suc­cess­fully confounded hedge funds with bear­ish views on oil by reach­ing an un­ex­pected pro­duc­tion deal with OPEC mem­bers in Al­giers on Sept. 28, send­ing prices soar­ing in a short­cov­er­ing rally.

Hedge funds and other money man­agers in­creased their net long po­si­tion in the three main Brent and WTI fu­tures and op­tions con­tracts by a record 142 mil­lion bar­rels over the seven days ending on Oct. 4. Hedge funds’ net po­si­tion surged from 471 mil­lion bar­rels on the eve of the OPEC meet­ing to 612 mil­lion bar­rels seven days later. Short po­si­tions were cut by 69 mil­lion bar­rels while an ex­tra 73 mil­lion of long po­si­tions were added, ac­cord­ing to an anal­y­sis of data from reg­u­la­tors and ex­changes. The sur­prise agree­ment sent front-month Brent prices climb­ing by $5-6 per bar­rel as hedge funds scram­bled to close out los­ing short po­si­tions and add longs to cap­i­talise on the rally’s mo­men­tum. The Al­giers agree­ment marked a sharp turn­ing point in mar­ket sen­ti­ment to­wards oil which had been de­te­ri­o­rat­ing over the pre­vi­ous month. Be­tween late Au­gust and mid-Septem­ber, hedge funds had cut their net long po­si­tion in Brent and WTI by 178 mil­lion bar­rels (from 628 mil­lion to 449 mil­lion). The Al­giers agree­ment al­most ex­actly re­versed this shift and has more or less re­turned the oil mar­ket to the po­si­tion that pre­vailed in late Au­gust. — Reuters

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