Demand jitters repel oil bulls before worst rout in five months

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.