Hedge funds ramped up bullish bets on oil to the highest level since at least June 2006 as the Federal Reserve enacted stimulus measures, helping drive crude to a two-year high and weakening the dollar.
The funds and other large speculators increased wagers on rising crude prices by 8.6 percent in the seven days ended Nov. 2, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. So-called net-long positions climbed to a record for the CFTC data available.
The Fed said Nov. 3 it will buy an additional $600 billion of Treasuries to spur job growth in a second round of quantitative easing, known as QE2. U.S. payrolls rose more than forecast in October, the Labor Department said Nov. 5, also helping boost crude futures. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, slipped 0.9 percent last week and is down 13 percent since this year’s June 7 peak.
“It’s all about the dollar being debased,” said Mike Armbruster, co-founder of Altavest Worldwide Trading in Mission Viejo, California. “You’re going to see managed money take its cue from the dollar. If the dollar continues to weaken, you’ll see them continue to go long oil.”
Oil for December delivery rose $5.42 last week, or 6.7 percent, to settle at $86.85 a barrel on Nov. 5 on the New York Mercantile Exchange, the first five-day rally since April. It gained 21 cents, or 0.2 percent, to settle at $87.06 today on the New York Mercantile Exchange, the highest since Oct. 8, 2008, when oil closed at $88.95.
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 15,304 futures and options combined to 194,128, according to the CFTC report.
JPMorgan Chase & Co. and Bank of America Merrill Lynch last week forecast that oil may return to $100 a barrel for the first time since the 2008 financial crisis. Oil surged to a record $147.27 a barrel on July 11, 2008, before plunging 78 percent to a low of $32.40 on Dec. 19 that year.
Gold futures rose to a record $1,398.70 an ounce last week before settling at $1,397.70 on Nov. 5 on the Comex in New York, capping a 3 percent gain for the week. Wheat prices climbed to the highest level in almost four weeks as the grain for December delivery settled at $7.2875 a bushel on the Chicago Board of Trade. Corn touched a 26-month high of $5.9575 a bushel Nov. 4.
“Whatever QE2 will or won’t do in the economy, it will cause the price of raw materials to rise,” said Jennifer Fan, portfolio manager with Arrowhawk Commodity Strategies, a hedge fund in Darien, Connecticut.
Global oil demand will climb by 2.1 million barrels a day to 86.9 million this year and to 88.2 million in 2011, the Paris-based International Energy Agency said on Oct. 13. Spare production capacity of the Organization of Petroleum Exporting Countries dropped to about 5.8 million barrels a day last month, from a seven-year high of 6.8 million in March 2009, according to a Bloomberg survey of oil companies, producers and analysts.
Petroleum prices were further supported as Saudi Arabia’s Oil Minister Ali Al-Naimi said on Nov. 1 that a range between $70 and $90 a barrel is satisfactory for consumers. The kingdom had previously indicated a preferred target of $75 a barrel.
Crude may increase this week on the dollar’s weakness, a Bloomberg News survey showed. Twenty-nine of 49 analysts and traders, or 59 percent, said oil will rise through Nov. 12. Thirteen respondents, or 27 percent, predicted prices will fall and seven estimated there would be little change.
In other markets, bullish, or long, bets on gasoline prices declined 1.9 percent to 50,759, the CFTC data showed. Net-long bets on heating oil fell for a fourth week, retreating by 4,832, or 13 percent, to 32,452.
Net-long positions in futures and options combined in four natural-gas contracts surged by 15,232.5 futures equivalents, or 71 percent, to 36,613.75 in the week ended Nov. 2, the CFTC report also 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.