Speculators cut bullish oil wagers to the lowest level in more than two years amid warnings the U.S. supply glut may soon strain storage capacity.
Hedge funds and other money managers reduced their net-long position in West Texas Intermediate crude by 2.5 percent in the seven days ended March 10, U.S. Commodity Futures Trading Commission data show. Short wagers rose to a record.
Oil supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest storage hub, have more than doubled in three months. Tanks nationwide are almost two-thirds full, and the International Energy Agency said March 13 that the glut raised the risk of more price slumps. Production has climbed even as companies idle drilling rigs at a record pace.
“You have a market that’s running out of storage space, and there really is no fix,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone March 13. “I don’t see this getting better.”
WTI fell 4.4 percent to $48.29 a barrel on the New York Mercantile Exchange in the week covered by the report. Futures slumped 96 cents on Monday to $43.88, the lowest settlement in six years.
U.S. crude inventories jumped by 4.51 million barrels in the seven days ended March 6 to 448.9 million, the most in weekly Energy Information Administration data since August 1982.
The U.S. has lost almost half its oil rigs since October, reaching the lowest level in almost four years, Baker Hughes Inc. data show. Yet crude output has continued to top records, reaching 9.37 million barrels a day, the most in weekly EIA data going back to 1983.
In addition, there are more than 3,000 oil wells that analysts including Wood Mackenzie Ltd. and RBC Capital Markets LLC estimate have been drilled and not yet tapped.
Competition is also increasing from abroad. The Organization of Petroleum Exporting Countries, which accounts for 40 percent of the world’s oil, pumped 30.6 million barrels a day in February, exceeding its target for the ninth month. Iraqi oil sales are poised to rise this month after a decline in February because of bad weather.
Russia pumped 10.71 million barrels a day in January, a post-Soviet record. It will maintain oil output for the next two decades, Energy Minister Alexander Novak said March 11.
The strengthening U.S. dollar is also weighing on oil because it makes the commodity, typically traded in dollars, more expensive for buyers outside the U.S. The Bloomberg Dollar Spot Index gained 2.9 percent in the report period and surged on March 13 to the highest level in more than a decade.
The net-long speculative position in WTI shrank by 4,032 contracts to 160,278 futures and options in the week ended March 10, the least bullish since Jan. 1, 2013. Short bets gained 4,763 to a record 142,770 and longs climbed 731 to 303,048.
Bullish bets on gasoline shrank 17 percent to 35,145 as futures slid 6.7 percent to $1.8183 a gallon on Nymex. Regular gasoline at U.S. pumps averaged $2.424 a gallon Sunday, according to Heathrow, Florida-based AAA, the country’s largest motoring group.
Bearish wagers on U.S. ultra low sulfur diesel rose 20 percent to 13,267 contracts. ULSD futures traded on the Nymex fell 12.6 cents to $1.8135 a gallon in the report week.
Speculators trimmed short wagers on U.S. natural gas for the fourth straight week, cutting the bets 20 percent to 32,245, based on an index of four gas contracts adjusted to futures equivalents.
Natural gas futures climbed 2 cents to $2.732 per million British thermal units in the week covered by the report.
Bets will likely get more bearish as oil supplies in the U.S. and abroad expand, Andy Lipow, president of Lipow Oil Associates LLC, an energy consultant in Houston, Texas, said by phone March 13.
“We haven’t seen U.S. production decline, OPEC decided not to cut production, there’s record oil production out of Russia and increases from Iraq,” Lipow said. “I expect oil to test the low $40s, and the hedge funds are even more bearish than I am.”