Hedge funds unwound bearish bets at the fastest pace in 10 months as anxiety about oil sinking to US$20 a barrel faded.
A lot has happened since Goldman Sachs made that forecast last month. Some U.S. shale drillers have added too the towel following a year of maintaining supply in the face of plunging prices, saying they’ll pump less in 2016. Saudi Arabia, Russia and other large producers have frozen output and intend to meet later this month to go over further measures to aid prices.
“We might begin to see the real bottom being behind us,” Ed Morse, head of global commodity research at Citigroup, said in a interview Friday with Bloomberg TV. “Eventually we’ll see U.S. supply falling.”
Speculators reduced their short positions in West Texas Intermediate crude by 15 percent in the week ended March 1, according to U.S. Commodity Futures Trading Commission data. Futures gained 7.9 per cent within the report week and have jumped 40 per cent since hitting a 12-year have less Feb. 11. The front-month contract traded at US$37.61 a barrel at 12:11 p.m. New York time.
U.S. crude production fell for any sixth time in the week ended Feb. 26 to 9.08 million barrels each day, the minimum level since November 2014, according to the Energy Information Administration.
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Apache Corp. said recently its oil and natural gas output will fall as much as 11 percent in 2016. Continental Resources Inc. projected a ten per cent cut and Whiting Petroleum Corp. a 15 percent reduction.
Members from the Organization of Petroleum Exporting Countries intend to meet with other producers between March 20 and April 1, Russian Energy Minister Alexander Novak said on Russian state television March 4. There hasn’t been your final decision on timing and placement, according to Novak.
Saudi Arabia, Russia, Qatar and Venezuela decided on Feb. 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the worldwide oversupply.
Many people think that we might have experienced the worst from it.
“Many people believe that we might have experienced the worst of it,” said Bart Melek, head of commodity strategy at TD Securities in Toronto. “There has been pretty significant declines in U.S. production. There’s hope that soon an OPEC agreement can come.”
The premium of December WTI puts over calls shrank Friday to the minimum since Jan. 25, and a an index measuring volatility in the largest oil exchange-traded fund has dropped towards the lowest in almost two months.
Speculators’ short positions in WTI fell by 25,639 contracts of futures and options combined to 150,718, the largest decline since April 21, CFTC data show. Longs, or bets on rising prices, fell by 753. The exodus of bearish bets resulted in a 24,886-contract jump in the net-long position.
In other markets, net bearish wagers on U.S. ultra low sulfur diesel rose by 2,801 contracts. Diesel futures climbed 7.6 % at that time. Net bullish bets on Nymex gasoline climbed 5,534 contracts as front-month futures gained 35 %.
Prices climbed even as U.S. crude supplies increased by 10.4 million barrels in the week ended Feb. 26 to 518 million, based on the EIA. That’s the highest level since 1930.
“The market is ignoring the builds in U.S. supplies,” said Phil Flynn, senior market analyst in the Price Futures Group in Chicago. “The marketplace is beginning to realize there will be a production freeze otherwise a cut. The mood is different.”
Bloomberg News
