De­mand jit­ters re­pel oil bulls be­fore worst rout in five months

Gulf Times Business - - BUSINESS -

For­get sup­ply: It’s all about de­mand for hedge funds cut­ting bullish oil bets be­fore the big­gest two-day price drop since May.

Money man­agers trimmed wa­gers on ris­ing West Texas In­ter­me­di­ate crude prices to an eleven-month low ahead of an eq­ui­ties rout that sent com­modi­ties tum­bling. Opec and the In­ter­na­tional En­ergy Agency cut their out­looks for global oil con­sump­tion, cit­ing slower eco­nomic growth and com­pe­ti­tion from US shale out­put.

The fo­cus on de­mand is an about­face for the oil mar­ket, which jumped to a four-year high ear­lier this month on con­cern that US sanc­tions against Iran would con­strain sup­plies.

The Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries pre­dicted the world will need fewer bar­rels of its crude next year, while the IEA said trade dis­putes and fal­ter­ing emerg­ing economies would dent con­sump­tion.

“Peo­ple in the oil mar­ket are start­ing to pay a lit­tle more at­ten­tion to over­all de­mand,” said Brian Kessens, who helps man­age $16bn in en­ergy as­sets at Tor­toise in Lea­wood, Kan­sas. “There is some grow­ing con­cern, which re­ally hadn’t been a con­cern over the past cou­ple of years, that crude oil de­mand is soften­ing a bit.”

De­mand jit­ters are com­ing to the fore amid con­flict­ing es­ti­mates of global sup­ply. Though out­put from Opec mem­bers Venezuela and Iran is drop­ping, US pro­duc­tion has climbed to a record. Amer­i­can oil can con­tinue to grow by 1mn bpd a year un­til 2021 at the ear­li­est, ac­cord­ing to Gold­man Sachs Group Inc, and the En­ergy In­for­ma­tion Ad­min­is­tra­tion boosted its fore­casts for US crude pro­duc­tion for both this year and next.

“Pro­duc­tion is ac­tu­ally hold­ing up re­ally well,” said Rob Haworth, who helps over­see about $151bn at US Bank Wealth Man­age­ment in Seat­tle. “Global eco­nomic growth is not ac­cel­er­at­ing,” call­ing “de­mand growth into ques­tion. Prices are go­ing to be con­strained.”

Cit­i­group Inc also said oil mar­kets are at risk of slip­ping on non-Opec sup­ply gains and po­ten­tially soften­ing de­mand. Hedge funds’ net-long po­si­tion – the dif­fer­ence be­tween bets on higher prices and wa­gers on a drop – in WTI crude slid 12% to 281,832 fu­tures and op­tions, ac­cord­ing to the US Com­mod­ity Fu­tures Trad­ing Com­mis­sion. Longs fell 7.9%, while shorts in­creased 32%. To­tal po­si­tion­ing on WTI is at the low­est since Novem­ber 2016.

The net-long po­si­tion in Brent fell 1.3% to 475,521 con­tracts for the week ended Oc­to­ber 9, ICE Fu­tures Europe data show. Longs dropped for a sec­ond straight week, while shorts edged higher.

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