Oil Slumps to Five-Year Low Amid Concern Funds May Start Selling

By Rupert Rowling

Dec. 8 (Bloomberg) -- Morgan Stanley Chief U.S. Equity Strategist Adam Parker discusses the price of oil on “Bloomberg Surveillance.” (Source: Bloomberg)

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Brent crude slumped to a five-year low amid concern that hedge funds and other money managers bet too much on rising prices. West Texas Intermediate also fell.
Futures dropped as much as 3.3 percent in London and 2.6 percent in New York. Net-long positions on Brent rose to the highest in four months in the week to Dec. 2, according to data from the ICE Futures Europe exchange, while bullish bets on WTI climbed the most in 20 months. Brent declined 9.9 percent in the period while WTI slumped 9.7 percent.
“The near-term risk is for additional long-liquidation,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. “The belief is spreading that we could hit $60 or even lower before this stabilizes.”

Oil Prices

Oil is trading in a bear market as the U.S. pumps at the fastest rate in more than three decades and global demand growth slows. Explorers in the U.S. increased the
number of operating rigs last week, defying predictions of a drilling slowdown as price plunge, data from Baker Hughes Inc. show.
Brent for January settlement declined as much as $2.30 to $66.77 a barrel on the London-based ICE Futures Europe exchange, the lowest since Oct. 7, 2009. It declined $1.84 to $67.23 at 1:38 p.m. local time. The European benchmark crude traded at a premium of $2.65 to WTI.

Photographer: Eddie Seal/Bloomberg

Orion Drilling Co.'s Perseus drilling rig near Encinal in Webb County, Texas. U.S. oil... Read More

WTI for January delivery dropped as much as $1.74 to $64.10 a barrel in electronic trading on the New York Mercantile Exchange. It slid 97 cents to $65.84 on Dec. 5, the lowest close since July 2009. The volume of all futures traded was about 3 percent above the 100-day average for the time of day. Prices decreased 34 percent this year.

WTI Slide

Money managers increased bullish bets on Brent crude by 31,303 contracts to 97,276 lots in the week to Dec. 2, the highest since Aug. 5, ICE data show. Speculators boosted net-long positions on WTI by 14 percent to 184,374 contracts in the same period, data from the U.S. Commodity Futures Trading Commission show. The figures are for futures and options combined.
Brent crude slumped the most in more than three years on Nov. 27 when the Organization of Petroleum Exporting Countries left its output ceiling unchanged at its meeting in Vienna, resisting calls from Venezuela to curb production. Brent slumped 18 percent last month, a fifth straight decline.

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Saudi Arabia led OPEC’s decision to maintain output at the group’s meeting in Vienna, citing the threat from U.S. shale, Iranian Oil Minister Bijan Namdar Zanganeh said on Nov. 28. The group pumped 30.56 million barrels a day in November, exceeding its quota of 30 million for a sixth straight month, according to estimates compiled by Bloomberg.
The surplus in the market will peak in the second quarter of next year after OPEC refrained from tackling an oversupply, Morgan Stanley analyst Adam Longson said in Dec. 5 report.

U.S. Rigs

The number of U.S. rigs in operation rose to 1,575 through Dec. 5, the first gain in three weeks, according to Baker Hughes, a Houston-based field services company. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
U.S. oil production accelerated to 9.08 million barrels a day through Nov. 28, according to data from the Energy Information Administration data. That’s the fastest rate in weekly records that started in January 1983.