Hedge funds cut bullish oil bets on rising global output

Hedge funds cut bullish holdings in crude as record US output added to a global supply glut, spurring the longest losing streak in prices in six years.

Money managers reduced net-long positions in West Texas Intermediate by 2.3 percent in the week ended October 28, US Commodity Futures Trading Commission data show. Long positions retreated to the lowest level in 17 months.

WTI fell 12 percent in October for a fourth consecutive drop, echoing the collapse in prices during the global financial crisis. Production by OPEC rose to the highest in more than a year last month, a Bloomberg survey showed, and U.S. output is running at the fastest pace since at least 1983. The gains came as the International Energy Agency reduced its estimate for demand growth this year and in 2015.

“In 2008 it was a collapse of demand that was largely responsible for the drop in prices,” Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management which oversees about $120bn, said on October 31st. “Now we’re awash in supply.”

WTI fell 1.7 percent to $81.42 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report.

The Organisation of Petroleum Exporting Countries (OPEC) pumped 30.974 million barrels a day in October, the most since August 2013, led by gains in Iraq, Saudi Arabia and Libya, a Bloomberg survey of oil companies, producers and analysts showed. OPEC, which supplies about 40 percent of the world’s oil, is scheduled to meet November 27 in Vienna to discuss output targets.

“Investors are selling because OPEC is producing too much oil,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said October 31. “The focus in November will be on the OPEC meeting and whether they can come to an agreement to make cuts.”

The group’s biggest producers, Saudi Arabia, Iraq, Iran and Kuwait, cut their official selling prices last month, a sign that their primary aim is to preserve market share.

“Within OPEC, there is a price war because the market’s fundamentals have changed,” Adel Abdul Mahdi, Iraqi oil minister, told parliament October 30, according to state TV.

OPEC last cut quotas in December 2008, trimming its target by 2.46m barrels a day in response to the global recession that sent WTI tumbling from a record $147.27 a barrel in July 2008 to a low of $32.40 in December of the same year.

“The market has a chance to turn here, provided OPEC does something about cutting quotas and actual production levels,” Tim Evans, an energy analyst, at Citi Futures Perspective in New York, said by phone on October 17.

“We’ll soon learn how much recent statements have been posturing. Historically, the weaker the price the more OPEC tends to act together as a group.”

Source : BusinessDay

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