Opec buzz sends oil surging, hedge funds turn cautious
washington — The Opec buzz has once again sent Brent crude surging, but hedge funds are playing it cool.
They reduced their bullish stance on the global benchmark for a second week as they brace for Opec’s market swings — where prices rally too much before a high-profile meeting of the group, only to slump on an announcement that fails to surprise.
“There has been a considerable run-up in prices already,” said Tamar Essner, an energy analyst at Nasdaq Inc. “Even if Opec does exactly what they say they’re going to do, the market wants more shock and awe.”
At more than $63 a barrel, Brent is trading near its highest in two years as the Organisation of Petroleum Exporting Countries and its allies, meeting in Vienna on November 30, are expected to prolong their output curbs. The group and Russia have crafted the outline of a deal to extend the cuts to the end of next year, although both sides are still hammering out crucial details, according to people involved in the conversations.
Money managers are taking a lesson from the May Opec meeting. In the weeks leading up to that gathering, futures climbed 10 per cent on speculation that the group would extend cuts. But once Opec did that, and nothing else, oil slipped back. That’s giving hedge funds a bit of deja vu.
“Hopes went so high last time that, when Opec did what they said they were going to do, people were disappointed,” said Ashley Petersen, lead oil-market analyst at Stratas Advisors in New York. “Now it’s a little bit of wait-and-see until the Opec meeting.”
Hedge funds cut their Brent netlong position — the difference between bets on a price increase and wagers on a drop — by 2.1 per cent to 526,240 contracts in the week ended November 21, according to data from ICE Futures Europe. Shorts fell 4.2 per cent, while longs declined 2.3 per cent.
Still, optimism is growing that Thursday’s meeting will yield a continuation of output cuts aimed at trimming the global supply glut. Whether that persuades money managers to bet on rising prices is another matter.
“What I want to see more of is what the exit strategy is,” said Nasdaq’s Essner. “Do we just go back to a free-for-all?”
Meanwhile, Barclays on Monday said that while it expects a six- or nine-month extension of an Opecled deal to curb oil output during a meeting on November 30, the level of production cuts would be more significant than the duration.