Home / Industry / Energy /  Hedge fund crude bets tumble amid surging global supply

New York: Speculators are the least bullish on the US crude oil prices in 16 months as refinery maintenance weakens demand at a time when Libya and Iraq are swelling global supplies.

Futures dropped a fifth consecutive week after money managers reduced net-long positions in West Texas Intermediate, the US benchmark grade, by 14% in the seven days ended 19 August, the Commodity Futures Trading Commission said.

Prices sank below $95 on 19 August for the first time in seven months as US air strikes in Iraq helped reverse the advance of Islamic State militants and Kurds work to increase oil shipments.

Libyan output climbed last week and exports resumed from the port of Es Sider. Refineries in the US typically schedule work for September and October, when demand for gasoline declines after the summer peak, and before consumption of heating fuel picks up during winter.

“It’s hard not to be bearish with the Kurds boosting shipments and more oil coming out of Libya," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said over the phone on 22 August. “The market isn’t getting any support from geopolitical side now and supplies continue to increase."

Crude declined 3% to $94.48 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. It slid 0.5% to $93.21 a barrel at 9:39am.

Air strikes

President Barack Obama will consider air strikes in Syria if needed in the battle against the Islamic State terrorists who beheaded US journalist James Foley, deputy national security adviser, Ben Rhodes, told reporters ON 22 August.

“The killing appears to have galvanized the US, western Europe and other countries to adopt a unified stance against the guerrillas," Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group Llc, said by phone on 22 August. “Not only have they have lost the ability to cut Iraqi oil exports but the Kurds have gained the ability to increase theirs."

Iraq’s Kurds are working to quadruple the capacity of their oil-export pipeline within months, an official with knowledge of the situation said, asking not to be named because of policy. The Kurdistan Regional Government (KRG) more than doubled daily capacity to 300,000 barrels on its link to Turkey as of 21 August, and is considering another increase that would allow the line to move 500,000 barrels a day to the Mediterranean port of Ceyhan within as little as three months, the official said.

Libyan production

In Libya, production increased to 612,000 barrels a day on 21 August, according to Mohamed Elharari, a spokesman for National Oil Corp. (NOC). Two cargoes have loaded at the reopened port of Es Sider, according to the NOC. The North African country pumped 400,000 barrels a day in July, according to a Bloomberg survey of oil companies, producers and analysts.

Increase in crude supply from Libya and Iraq comes as EIA forecasts US production will reach 9.28 million barrels a day next year, highest annual average since 1972.

The EIA in its short-term energy outlook released on 12 August estimated US refineries will process 15.25 million barrels a day of crude in October, down from 16.42 million in July.

Price floor

The price rout in Brent crude, the European benchmark used to value more than half the world’s oil, is coming to an end as the flow of West African crude to Asia helps disperse a glut, banks including Societe Generale SA, BNP Paribas SA and DNB ASA said.

“A price floor is forming close to $100 a barrel for Brent as the surplus of Nigerian supplies is whittled away," Societe Generale said in a report on 21 August. “The incentive for sending cargoes from the region to buyers in Asia is at its strongest in four years," data from PVM Oil Associates Ltd show. Chinese and Indian refiners bolstered purchases of West African crude to the highest in at least three years, a Bloomberg News survey of traders last week indicated.

Hedge funds and other speculators cut bullish bets on Brent to the lowest level in two years, data released on Monday by the ICE exchange show. Money managers’ wagers that prices will rise, in futures and options combined, outnumbered wagers that prices will fall by 63,079 contracts in the week ended on 19 August, the least since 10 July 2012.

Net-longs for WTI slipped by 30,225 to 188,589 futures and options, the lowest level since the seven days ended 23 April 2013. Long positions fell 4.2% to 258,246, the least since June 2013.

Shorts climbed 37% to 69,657, highest level since December 2012.

Gasoline bets

In other markets, bullish bets on gasoline fell 14% to 28,431 futures and options combined, the least since February.

Futures declined 1.4% to $2.6954 a gallon on Nymex in the reporting period. They dropped 0.91 cent to $2.7384 on 22 August. Regular gasoline at the pump, averaged nationwide, slid 0.2 cent to $3.435 a gallon on Sunday, the lowest since 25 February, according to Heathrow, Florida-based AAA, the largest US motoring group.

“I don’t see a lot of upside in the gasoline market," Tim Evans, an energy analyst at Citi Futures in New York, said by phone on 22 August. “There may be a short-term spurt of demand but the market’s looking ahead to weaker fourth-quarter demand."

Bearish wagers on US ultra low sulphur diesel fell 40% to 7,828 contracts. The fuel decreased by 2.79 cents to $2.8171 a gallon in the report week.

Natural gas

Net-long wagers on US natural gas rose 14% to 149,608, the first gain since June.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures US Henry Hub contract.

Nymex natural gas dropped 2.4% to $3.877 per million Btu during the report week. It fell 1.3% to $3.84 on 22 August.

Members of the Organization of Petroleum Exporting Countries may curb output to keep prices from dropping further, BNP Paribas and Commerzbank AG said in reports last week.

OPEC ministers kept their target unchanged at 30 million barrels a day on 11 June in Vienna. The group is scheduled to meet next on 27 November.

“With the increase in Kurdish shipments, Libyan output and rising production here, OPEC will have to consider taking some action to support prices," Finlon said. Bloomberg

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