Oil bulls flee as market stirs déjà vu of worst rout in decades
Net-long wagers on the international benchmark fell 15% in one week
Hedge funds haven’t been this pessimistic about global oil prices since Brent crude was spiralling into its worst rout in a generation almost three years ago.
Net-long wagers on the international benchmark fell 15 per cent in the week ending November 20, hitting their lowest level since oil crashed below $30 (Dh110) a barrel in January 2016, according to data released on Friday by ICE Futures Europe.
Then as now, it’s Saudi Arabia and the US that are tipping the balance, prompting money managers to bet against a price recovery. Under pressure from US President Donald Trump, the kingdom is pumping crude at a record pace even as volumes from American shale producers reach new heights.
“People are really reacting to a double whammy of both supplies and inventories going up at the same time that demand seems to be cooling down,” said Tamar Essner, an analyst at Nasdaq Inc. in New York. “Oil is getting hit from both sides.”
Prospect of oversupply
Net longs — the difference between bullish and bearish Brent wagers — fell to 182,569 futures and option contracts, the ICE Futures numbers showed. Long-only bets fell 8.6 per cent.
Short positions climbed 6.6 per cent and have now more than tripled since late September.
The funds proved prescient. Brent for January settlement slid below $60 a barrel on Friday, capping its worst week since early 2016. Data on hedge fund wagers for West Texas Intermediate crude, typically released on Fridays, won’t come until November 26 due to the US Thanksgiving holiday.
The Saudis have signalled they will throttle back on production in December. But unless Opec and Russia can reach a new deal to constrain output in Vienna next month, analysts see the prospect of sustained oversupply in 2019, undoing the group’s success over the last two years to drain inventories.
“It feels like the market’s going to really force their hand by trying to break $50,’ Essner said.