OPEC Division Spurs Hedge Funds to Trim Bullish Oil Bets

By Moming Zhou

Photographer: Daniel Acker/Bloomberg

A driver monitors equipment while delivering 7,500 gallons of unleaded gasoline to a... Read More

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Hedge funds turned less bullish on crude oil as OPEC failed to signal it will act to halt the collapse that drove prices to a four-year low.
Money managers reduced net-long positions in West Texas Intermediate by 4.1 percent in the week ended Nov. 18, U.S. Commodity Futures Trading Commission data show. Long positions sank to an 18-month low. Outstanding futures contracts dwindled to the lowest level in more than two years.
Members of the Organization of Petroleum Exporting Countries will meet in Vienna on Nov. 27 to decide on production after oil plunged 30 percent since June. Leading producers, including Saudi Arabia, are resisting calls to reduce output while others such as Venezuela seek action to support prices. The 20 analysts surveyed last week by Bloomberg are perfectly divided, with half predicting a
cut and the rest no action.
“Traders tend to pull their horns in in times of uncertainty,” Tom Finlon, the Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Nov. 21. “OPEC is overproducing. With the outcome of the OPEC meeting being unclear, and with generally strong supply circumstances, traders are reducing their positions.”
WTI fell $3.33, or 4.3 percent, to $74.61 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. It settled at $74.21 on Nov. 13, the lowest level since September 2010. Futures rose 34 cents to $76.85 at 1:57 p.m. in Singapore today.

Open Interest

WTI open interest slipped to 1.4 million contracts Nov. 20, the least since July 2012, according to exchange data.
OPEC, responsible for about 40 percent of global oil output, produced 30.97 million barrels a day in October, exceeding its 30 million target for a fifth month, according to data compiled by Bloomberg. Global consumption will slip by about 1 percent in the first quarter, the International Energy Agency said Nov. 14.
U.S. output will reach a four-decade high next year as production from shale formations grows, the Energy Information Administration forecast Nov. 12.
“People are taking bullish bets off because they don’t know what’s going on with OPEC,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors, said by phone Nov. 21.

Analysts Survey

It’s the first time participants in the Bloomberg survey were evenly split in the seven years since they began. The only episode that created a similar debate was the OPEC meeting in late 2007, when crude was soaring to a record.
Saudi Arabia is committed to seeking a “stable” oil price and speculation of a battle between crude producers “has no basis in reality,” Saudi Oil Minister Ali Al-Naimi said at a conference in Acapulco, Mexico, on Nov. 12.
“The Saudis are not dissatisfied at this price level,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The most likely outcome of the meeting is that they’ll call people to obey their quota. I don’t think you’ll see any serious change in production.”

Net Longs

Net longs for WTI declined by 7,439 to 175,051 futures and options combined. Long positions fell 1.3 percent to 248,217, the lowest since May 14, 2013. Short positions increased 6.1 percent to 73,166, according to the CFTC. Net longs rose in the previous week.
In other markets, bearish wagers on U.S. ultra low sulfur diesel dropped 19 percent to 23,565 contracts. The fuel sank 3.5 percent to $2.3813 a gallon in the report week.
Bullish bets on gasoline climbed 22 percent to 39,320 contracts, the most since July. Futures slipped 2.9 percent to $2.0432 a gallon on Nymex in the reporting period.
Regular gasoline prices at the pump averaged $2.82 on Nov. 22, the least expensive since November 2010, according to AAA.
Net-long wagers on U.S. natural gas increased 6.6 percent to 94,075 contracts. 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 U.S. Henry Hub contract. Nymex natural gas was little changed at $4.244 per million British thermal units during the report week.
OPEC last cut quotas in December 2008, trimming its target by 2.46 million barrels a day in response to the financial crash that sent WTI tumbling from a record $147.27 in July 2008 to $32.40 in December of the same year.
“The big challenge OPEC has in terms of making any cuts is to decide first from what basis to make the cuts,” Daniel Yergin, vice chairman of Englewood, Colorado-based IHS Inc., said Nov. 21. “It’s challenging because Saudi Arabia is concerned to maintain its market share and every country’s situation is so different.”