Hedge funds raised bullish bets on oil to the highest level in more than five months amid speculation that the Federal Reserve will enact further stimulus measures to keep the economic recovery on track.
Hedge funds and other large speculators increased wagers on rising crude prices by 44 percent in the seven days ended Oct. 5, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest level since April 23.
“The writing has been on the wall for the rally in crude oil for the last few weeks,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania.
Crude has rallied 12 percent since Sept. 17 amid growing evidence that the Fed will need to start debt purchases to prevent the world’s biggest economy from sliding back into a recession, weakening the U.S. currency and boosting dollar- denominated commodities. The dollar depreciated 1.1 percent last week, while crude advanced 1.3 percent.
Oil for November delivery fell 45 cents to settle at $82.21 a barrel on the New York Mercantile Exchange. Futures gained 99 cents on Oct. 8 after the Labor Department said U.S. employers cut hiring more than forecast in September, trimming 95,000 workers. The median estimate of 87 economists surveyed by Bloomberg News was for a decline of 5,000 jobs.
The employment report increased the prospect of the Fed debt purchases, according to Andy Lipow, president of Lipow Oil Associates LLC, a Houston-based energy consultant. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, has slipped more than 12 percent since this year’s peak on June 7.
The central bank bought $300 billion of Treasuries in 2009.
Deutsche Bank AG raised its fourth-quarter and first-quarter 2011 forecasts for both Nymex and Brent oil to $80 a barrel because of the rising stock market and falling dollar, Adam Sieminski, the bank’s Washington-based chief energy economist, said in a report last week. As recently as mid-September, the bank’s forecasts were $70 for the fourth quarter and $75 for the first.
“You look around the world and see good economic news out of China and some parts of the European Union, most notably Germany,” Lipow said. “Even here in the U.S., as bad as the perception of the economy is, total petroleum demand is up.”
The four-week average of total petroleum products supplied rose 2.2 percent from a year ago, the Energy Department reported last week.
Net-long positions in oil held by what the CFTC categorizes as managed money, including hedge funds, commodity pools and commodity-trading advisers, rose by 51,634 futures and options combined to 168,540, according to the CFTC report.
Bullish bets on gasoline prices more than doubled to 50,354, the fifth straight weekly increase, the data showed. Net-long positions on heating oil rose for a sixth week, advancing 21,433, or 69 percent, to 52,699.
Net-long positions in futures and options combined in four natural-gas contracts decreased by 19,828 futures equivalents to 31,479 in the week ended Oct. 5, the lowest level this year, the CFTC data showed.
The measure of natural-gas net longs includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps, and ICE Henry Hub Swaps. Henry Hub in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.