Investors gloomy on oil recovery as prices fall further

HEDGE funds have turned more pessimistic on oil as prices flirted with $40 (R575) a barrel for the first time since August.

“The speculators keep trying to pick the bottom and keep getting burned,” Michael Lynch, the president of Strategic Energy & Economic Research in Massachusetts, said.

Money managers’ short bets in West Texas Intermediate (WTI) crude surged 21 percent in the week ended November 10, according to data from the Commodity Futures Trading Commission (CFTC). The netlong position dropped 16 percent. The release of the figures was delayed because of Veterans Day on November 11.

Oil inventories in developed countries had expanded to a record of almost 3 billion barrels, because of massive supplies from both Opec and non-Opec producers, the International Energy Agency (IEA) said in a report on November 13. WTI slipped to the lowest level since August before the CFTC release on Monday. Thirty-nine oil tankers are waiting near Galveston, Texas, up from 30 in May, according to vessel-tracking data.

“There’s been concern about excess supply in the market for a while now, and that’s been strengthened by the IEA report,” Lynch said.

WTI fell 7.7 percent in the report week on the New York Mercantile Exchange. Futures were down 0.1 percent at $41.68 a barrel at 11.48am in Singapore. Prices touched $40.06 on Monday, the least since August 27, before rebounding to close 2.5 percent higher.

Oil inventories had surged because of increased global production, Opec said on November 12. US crude supplies had risen to 487 million barrels as of November 6, the highest for this time of year since 1930, the Energy Information Administration reported on the same day.

No rally ahead

“We think the next few months will be very weak,” Sarah Emerson, the managing director of ESAI Energy, a consulting company in Massachusetts, said.

“The market is focused on inventories. Prices shouldn’t rally in the coming year unless we have a disruption.”

Speculators’ net-long position in WTI dropped by 27 198 contracts to 144 854 futures and options, the biggest decline since the week ended July 21, CFTC data show.

Shorts climbed by 23 766 contracts while longs decreased by 3 432.

Traders increased their bullish stance in Brent crude to the highest level in a month during the period. Speculators raised Brent net-longs to 187 479 contracts, according to data from ICE Futures Europe.

In other markets, net bearish wagers on US ultra low sulphur diesel decreased 5.2 percent to 30 818 contracts.

Diesel futures slipped 5.1 percent in the period to $1.4865 a gallon.

Net bullish bets on Nymex petrol fell 14 percent to 15 434. Futures dropped 5.8 percent in the period covered by the CFTC report to $1.3618 a gallon. – Bloomberg