Oil bulls exit before prices dip below $50 a barrel
new york — Oil’s fall from grace last week started with hedge funds, and it may only get worse from here.
Investors cut bullish wagers on West Texas Intermediate crude to a one month-low, according to US Commodity Futures Trading Commission (CFTC) data, a move that came just prior to a market dive that sent prices below $50 a barrel for the first time since December.
“This report is just the beginning,” said John Kilduff, a partner at Again Capital, a New Yorkbased hedge fund that focuses on energy. “The volume and breadth of the decline this week show that there was massive liquidation. Next week’s report will be the blockbuster.”
Optimism about an agreement between the Organisation of Petroleum Exporting Countries and some non-Opec producers to cut output is fizzling as stockpiles continue to climb and US drilling rigs are returning at the fastest rate since 2012.
The slide in oil prices, which had traded between $50.50 and $55.24 since December 16, helped drag the S&P 500 to its first weekly decline since January. WTI on Monday traded down 0.2 per cent at $48.39 a barrel as of 9.25am London time.
The market’s volatility surged the most since before the 2014 price crash started after a government report showed US inventories reached a record. The gains since Opec agreed to cut output at the end of November were wiped out. The rout accelerated on Friday after Baker Hughes data showed American shale explorers keep adding rigs.
Hedge funds trimmed their WTI net-long position, or the difference between bets on a price increase and wagers on a decline, by 2.9 per cent in the week ended March 7, following a 6.5 per cent drop the
Funds nervous
previous week, according to the CFTC. The net-long position fell by 11,149 futures and options to 375,558, capping the first twoweek decline since November. Longs slipped 2.5 per cent, while shorts advanced 0.5 per cent. “The data from the last two reports suggests they were getting nervous,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said. “Money managers were becoming concerned about their net exposure and the lack of upward movement in price.”
Shale billionaire Harold Hamm said his industry could “kill” the oil market if companies keep increasing spending to boost drilling. Saudi Oil Minister Khalid Al Falih said inventories haven’t fallen as fast as Opec had expected.
“There’s been a loss of confidence,”
The fourth consecutive US crude inventory record might have helped send them for the exits Tim Evans, energy analyst at Citi Futures Perspective
Evans said. “The fourth consecutive US crude inventory record might have helped send them for the exits and the admission of Khalid Al Falih that inventories weren’t falling as much as anticipated also caught their attention.”
US crude stockpiles rose to 528.4 million barrels in the week ended March 3, the highest in weekly data going back to 1982, according to an Energy Information Administration report on March 8. Crude production rose to 9.09 million barrels a day, the highest since February 2016. The nation’s active oil-rig count has almost doubled since May to 617 last week, according to Baker Hughes.
As output climbs, producers are increasingly seeking protection against a price reversal. Their netshort position fell to the most bearish stance since the record reached in April of last year.
“We’re going to be watching the rig counts pretty closely from now on,” Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at US Bank, which oversees $136 billion in assets, said. “If prices stay under $50, we should see some North American producers slow investment.”