Speculators increased bullish oil bets by the most in more than four years, wagering that the U.S. production boom is slowing.
Hedge funds boosted net-long positions on West Texas Intermediate crude by 30 percent in the seven days ended April 7, the biggest jump since October 2010, U.S. Commodity Futures Trading Commission data show. Long bets rose to a nine-month high, while shorts tumbled 21 percent.
U.S. crude output and inventories may peak this month amid a record drop in rigs exploring for oil, Goldman Sachs Group said. Refiners returning from seasonal maintenance will add about 500,000 barrels a day of demand by July, the Energy Information Administration forecast, helping ease the biggest glut in 85 years.
“We’re starting to see production flatten out and soon should begin to see it decline,” Mike Wittner, the head of oil market research at Societe Generale SA in New York, said by phone April 10. “We’ve seen an incredible drop in the rig count.”
Futures for May delivery advanced $6.38, or 13 percent, to $53.98 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. The contract climbed 27 cents to close at $51.91 on Monday.
Drillers idled oil rigs for the 18th straight week to bring the total count down to the lowest level in more than five years, Baker Hughes Inc. said April 10.
U.S. refineries will use 16 million barrels a day of crude this month, the EIA estimated last week. That will jump to 16.5 million in July.
“Our rig-based modeling of near-term U.S. production points to production nearing a peak,” Goldman analysts including Damien Courvalin in New York said in the April 6 report. “Combined with an expected ramp up in refinery runs, we expect U.S. crude oil inventories to peak in April.”
The U.S. shale boom that sent production to a three-decade high has coincided with gains elsewhere, helping to fuel a worldwide glut. The Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil, exceeded its daily target for a 10th straight month in March, a Bloomberg survey showed. Saudi Arabia, the world’s biggest exporter, pumped 10.3 million barrels a day in March, the most since 2002, Oil Minister Ali al-Naimi said last week.
U.S. crude inventories jumped the most in 14 years to reach 482.4 million barrels as of April 3, the highest level since 1930. Supplies at Cushing, Oklahoma, the delivery point for WTI, have grown 87 percent this year to a record.
“Investors are looking to increase their crude oil exposure even though the fundamentals are bearish,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone April 10. “The crude market is clearly very oversupplied, even without one additional barrel from Iran.”
Net-long positions in WTI rose by 49,004 to 212,371 futures and options, the most since January, according to the CFTC. Short bets declined 32,794 to 126,264, while long positions rose by 16,210 to 338,635.
In other markets, bullish bets on gasoline climbed 5.1 percent to 25,415 contracts. Futures advanced 4.5 percent to $1.8609 a gallon on Nymex in the reporting period.
The U.S. average retail price of regular gasoline fell 0.2 cent to $2.388 a gallon Sunday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
Bearish wagers on U.S. ultra low sulfur diesel increased 23 percent to 31,952 contracts, the most in eight weeks. The fuel rose 3.8 percent to $1.7838 a gallon.
Net-short wagers on U.S. natural gas rose 3.8 percent to 73,051 lots, the most since at least 2010. The measure includes an index of four contracts adjusted to futures equivalents.
Nymex natural gas rose 1.5 percent to $2.68 per million British thermal units during the report week.
Sanctions against Iran, OPEC’s joint third-biggest producer last month, must be lifted as soon as an agreement is signed, the nation’s supreme leader Ayatollah Ali Khamenei said April 9, contradicting U.S. and French descriptions of an accord announced on April 2.
Prices have also been supported by concern that conflict in Yemen may widen. Saudi Arabia is leading a coalition of 10 Sunni-ruled nations that’s bombed Iranian-supported Shiite rebels. Yemen lies on one side of Bab el-Mandeb, the fourth-busiest oil and fuel shipping bottleneck in the world by volume.
“The Iranian nuclear accord appears to have heightened tensions in the Middle East rather than calmed them,” John Kilduff, partner at Again Capital LLC, an energy hedge fund in New York, said by phone April 10. “The situation is getting worse, reviving the security premium.”
(An earlier version of this story corrected Iran’s OPEC ranking.)