Record U.S. crude stockpiles spurred speculators to cut bullish oil bets to the least in five weeks just as futures dropped below $100 a barrel for the first time in almost a month.
Money managers reduced net-long positions in West Texas Intermediate, the U.S. benchmark grade, by 0.9 percent in the seven days ended April 29, the second weekly decrease, the Commodity Futures Trading Commission said. Short positions climbed to the highest level in about a month.
Crude supplies rose to 399.4 million barrels in the week through April 25, the most since the Energy Information Administration began reporting weekly data in 1982. U.S. output climbed to a 26-year high last month as horizontal drilling and fracking unlocked inventories from shale formations from the Bakken in North Dakota to the Eagle Ford in Texas.
“The recent pullback in prices makes sense and I expect it to continue,” Stephen Schork, the president of Schork Group Inc. in Villanova, Pennsylvania, said by phone on May 2. “WTI will probably be trading in the low-to-mid $90s area soon.”
Futures declined 0.8 percent to $101.28 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. WTI slid below $100 on April 30 and ended lower today at $99.48.
Inventories in the Gulf Coast region, known as PADD 3, increased to 215.3 million barrels in the week ended April 25, the most in EIA data going back to 1990.
“The rise in supplies, especially on the Gulf, should reverberate through global markets,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone on May 2.
Much of the supply in PADD 3 is light, sweet crude, or oil with low density and sulfur content, from the shale fields. Many refineries in the region run most efficiently on cheaper heavy, sour barrels from Mexico and Venezuela. Refiners on the Texas Gulf Coast use higher-sulfur crude with a greater density than the U.S. average, according to data from the EIA, the Energy Department’s statistical arm.
Refineries operated at 91 percent of capacity in the week ended April 25, unchanged from the prior week when rates climbed to the highest level since Jan. 3. Units often restart this time of year after performing maintenance in late winter.
“Refinery activity might rise enough in the next two months to counter the growth in crude oil output and reduce inventories,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said May 2 by phone. “It’s fairly remarkable that refinery runs have been above 16 million barrels for two weeks now and inventories still increased.”
Traders are also focused on the possible increase in shipments from Libya. The Zueitina oil terminal, 550 miles (885 kilometers) east of the capital Tripoli, saw its first tanker loaded with oil depart since being seized in July by federalists seeking self-rule. Libyan output has dropped about 80 percent since the start of the uprising that led to the ouster of Muammar Qaddafi in 2011.
Futures rose on May 2 after Ukraine sent armored vehicles and artillery to retake Slovyansk, a separatist stronghold, and as President Barack Obama and German Chancellor Angela Merkel warned they’re ready to impose more sanctions on Russia. WTI surged to a five-month high on March 3 amid tension between Ukraine and Russia, the world’s biggest energy exporter.
“There’s been a major escalation in the Ukraine crisis today and the market response has been limited,” Kilduff said on May 3. “Economic and geopolitical factors are having a muted effect because of the undertow this has created.”
Hedge funds and other money managers reduced net-long positions in WTI by 3,080 to 330,711 futures and options in the week ended April 29, the CFTC reported. Long positions rose 0.5 percent and shorts climbed 19 percent, the most in five weeks.
Bullish bets on gasoline increased 8.6 percent to 82,891 futures and options, the most since February 2013. Futures slid 3.18 cents to $3.0634 a gallon on Nymex in the reporting period.
Regular gasoline at the pump, averaged nationwide, fell by 0.2 cent to $3.673 a gallon yesterday, the lowest since April 22, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.
Money managers’ bullish wagers on U.S. ultra-low-sulfur diesel gained 6.3 percent to 35,064. The fuel decreased by 3.25 cents to $2.9701 a gallon in the report week.
Net-long wagers on U.S. natural gas dropped 9.3 percent to 395,301, the biggest decline since November. 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 Futures U.S. Henry Hub contract.
Nymex natural gas rose 1.9 percent to $4.831 per million British thermal units during the report week. They fell by 4.5 cents to $4.674 on May 2.
“We just have an abundance of oil, particularly in the U.S.,” Evans said. “High and rising supply in the U.S. points to a bear market going ahead.”