Oil Bears Bet Right as Futures Retreat to Six-Month Low

Photographer: Shane Bevel/Bloomberg

Inventories at Cushing are near a six-year low and started declining in January after the southern leg of TransCanada Corp.’s Keystone XL pipeline began moving oil from the hub to Gulf refineries. Close

Inventories at Cushing are near a six-year low and started declining in January after... Read More

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Photographer: Shane Bevel/Bloomberg

Inventories at Cushing are near a six-year low and started declining in January after the southern leg of TransCanada Corp.’s Keystone XL pipeline began moving oil from the hub to Gulf refineries.

Oil speculators bet right on prices after a fire at a refinery supplied by the biggest U.S. crude hub curbed demand and drove futures to a six-month low.

Hedge funds and other money managers trimmed their net-long position again in the week through July 29, extending the drop from this year’s peak in June to 22 percent, U.S. Commodity Futures Trading Commission data show.

West Texas Intermediate crude fell 6.8 percent in July, the most in more than two years. CVR Energy Inc. (CVI) shut the Coffeyville refinery in Kansas after a fire July 29, reducing purchases from Cushing, Oklahoma, the delivery point for New York futures. Refiners cut back operating rates as gasoline demand dropped and fuel stockpiles increased.

“Coffeyville strikes right at the heart of Cushing and it’s going to have an outsized impact on Cushing inventories,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, by phone Aug. 1. “It’s pushing WTI prices lower and may continue to do so. The demand outlook is building pressure on prices.”

Oil futures fell $3.45, or 3.3 percent, to $100.97 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Prices settled at $97.88 on Aug. 1, the lowest close since Feb. 6. The contract climbed 41 cents, or 0.4 percent, to end trading at $98.29 today.

Four Weeks

The 115,000 barrel-a-day Coffeyville refinery may be shut for four weeks, Chief Executive Officer Jack Lipinski said July 31 on an earnings call. IIR Energy, an energy information provider based in Sugar Land, Texas, said July 29 that some units at the plant would restart within 72 hours.

Inventories at Cushing are near a six-year low and started declining in January after the southern leg of TransCanada Corp. (TRP)’s Keystone XL pipeline began moving oil from the hub to Gulf refineries. Supplies dropped to 17.9 million barrels in the week ended July 25, the lowest level since 2008, a U.S. Energy Information Administration report last week showed.

The Coffeyville shutdown came as U.S. refineries were already cutting back operations amid weak fuel demand and shrinking margins. Refineries operated at 93.5 percent of capacity in the week ended July 25, from 93.8 percent the previous week.

“They were running these refineries at very high levels for very long, and now they are going to cut the rates,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said by phone Aug. 1.

Weaker Demand

Gasoline demand fell to an average of 8.95 million barrels a day in the four weeks ended July 25, the weakest for this time of year since 2012, the EIA report showed. Inventories rose to 218.2 million barrels, the most since March. Consumption of the motor fuel in the U.S. typically peaks during the summer months.

The crack spread, a rough measure of the profit from processing a barrel of oil into gasoline, narrowed to $16.08 a barrel on July 24, the smallest since February. It settled at $17.38 Aug. 1, based on Nymex contracts.

The Bloomberg Commodity Index (BCOM) dropped 5 percent in July, the biggest monthly decline since May 2012. The Standard & Poor’s 500 Index fell 1.5 percent in July, the first monthly decrease since January. The Bloomberg Dollar Index gained 1.9 percent last month to the highest level since February. A stronger dollar can reduce the appeal of commodities traded in the U.S. currency.

Net-long positions on WTI slid 1,375 to 276,741 futures and options combined in the week ended July 29, according to the CFTC. Shorts position increased 2,193, or 7.4 percent, while longs gained 818.

Nymex Gasoline

In other markets, net-long bets on Nymex gasoline dropped 9.8 percent to 30,755. Futures slid 0.98 cent to $2.8709 in the report week. Regular gasoline at the pump, averaged nationwide, fell 0.4 cent to $3.50 a gallon yesterday, the lowest for this time of year since 2010, according to AAA in Heathrow, Florida. The price has dropped 18.4 cents since June 26.

Money managers’ bearish wagers on ultra low sulfur diesel widened to 7,842 contracts from 1,520 a week earlier. The fuel gained 5.25 cents to $2.9067 a gallon in the report week.

Net longs on U.S. natural gas decreased 4.2 percent to 192,550 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 Future.

Nymex natural gas rose 3.6 cents to $3.808 per million British thermal units during the report week.

WTI has tumbled 6.4 percent from its three-week high of $104.59 on July 21. Prices had climbed on concern that the downing of a civilian airplane in Ukraine on July 17 would increase tension with Russia and disrupt supplies from the world’s biggest energy exporter.

“All the fears of a disruption have gone away,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone Aug. 1. “The market is shedding all the speculative bets.”

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Charlotte Porter

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