After showing some short-lived optimism, hedge funds resumed their retreat from the U.S. oil market, cutting bullish positions for the seventh time in eight weeks as prices dropped to the lowest since 2009.
Money managers’ net-long position in West Texas Intermediate crude declined 11 percent in the week ended Aug. 11, U.S. Commodity Futures Trading Commission data show. Short positions climbed to the highest level since March, a signal speculators see prices continuing to fall. Funds curbed bullish bets on Brent in London to the lowest level since December, data from ICE Futures Europe showed.
Futures markets this summer have plunged the most since trading began in 1984 as the U.S. enters a period in which refinery demand usually drops. A global surplus will last through 2016, the International Energy Agency said Aug. 12. The Organization of Petroleum Exporting Countries reported the day before that its output climbed last month to the highest level in more than three years.
“The consensus view is that we’ve got further to fall,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Aug. 14. “The market is in what looks like a persistent supply-demand surplus and that will put downward pressure on prices, possibly through the end of 2016.”
West Texas Intermediate crude declined $2.66 to $43.08 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures lost 1.5 percent to close at $41.87 a barrel on Monday, the lowest settlement since March 2009.
Refinery Shutdowns
WTI, down 30 percent since the start of June, should come under renewed pressure when U.S. refineries perform maintenance next month, said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami.
Refiners cut operating rates during September in nine of the past 10 years and gasoline demand sank each year, U.S. Energy Information Administration data show.
“The summer driving season is pretty much gone and we’re now looking ahead to a lull in demand,” Corcelli said by phone Aug. 14. “Prices probably won’t continue to crash but they should grind lower.”
Speculators increased bullish bets on U.S. oil in the week ended Aug. 4, a move that came too early in a market that continues to slide.
Iraq’s production rose to an all-time high of 4.18 million barrels a day in July, which helped OPEC maintain output. Iran may add to the surplus after reaching a nuclear agreement last month.
U.S. Rigs
The number of active oil rigs in the U.S. increased for the sixth time in seven weeks, Baker Hughes Inc. data showed Aug. 14. The return may slow a decline in production as the nation’s crude stockpiles are almost 100 million barrels above the five-year average.
A stronger dollar is also weighing on futures, after China devalued the yuan. A weaker Chinese currency may hurt demand in the world’s second-largest crude consumer by making dollar-denominated imports more expensive.
The net-long position in WTI slipped by 12,472 contracts to 99,748 futures and options. Shorts increased 9.7 percent, the seventh gain in eight weeks, while longs advanced 0.8 percent.
Bullish bets on Brent, the benchmark for more than half the world’s oil, decreased by 21,295 contracts to 125,889, a fourth week of decline to the lowest level this year, ICE data show.
In other markets for the week, net bullish bets on Nymex gasoline dropped 7.4 percent to 13,553. Futures rose 0.5 percent to $1.6937 a gallon. Net bearish wagers on U.S. ultra-low-sulfur diesel increased 12 percent to 30,548 contracts, the most since April. Diesel futures rose 1 percent to $1.5629 a gallon.
Bullish bets on crude have tumbled by more than half since May to near a five-year low, CFTC data show. Short positions are nearing the highs from March.
“We could see them jump back in on the long side soon,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Aug. 14. “There’s always an effort to guess the bottom of any move.
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