OPEC’s Open Oil Spigots Spur Retreat for Bulls and Bears Alike

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OPEC Is Now a Non-Factor in Oil Price: Todd Horwitz

Oil speculators accelerated their retreat from both bullish and bearish wagers before OPEC ministers held firm in their plan to pump ever more crude.

Speculators reduced short wagers in West Texas Intermediate crude by 8.6 percent and long bets by 2 percent, for an overall 0.2 percent contraction in the net-long position, U.S. Commodity Futures Trading Commission data through June 2 show. Brent crude net-long positions dropped.

OPEC stuck to its strategy of defending market share rather than prices at a meeting in Vienna June 5. The group is pumping the most oil since 2012, even with prices 45 percent below last year’s peak. The supply glut persists because even though U.S. producers idled a record number of rigs and global drillers slashed spending plans, output has yet to collapse.

“It’s abundantly clear now that there is going to be a lot more production coming,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone June 5. “So far we haven’t seen any serious decline in U.S. production, and that’s the other element there.”

WTI futures gained $3.23 to $61.26 a barrel on the New York Mercantile Exchange in the seven days covered by the CFTC report, the highest settlement level since Dec. 9. The contract lost 99 cents to $58.14 Monday. Brent for July settlement fell 62 cents to $62.69 on the London-based ICE Futures Europe exchange.

OPEC Target

The Organization of Petroleum Exporting Countries pumped 31.58 million barrels a day in May, compared with their target of 30 million, according to data compiled by Bloomberg.

“A substantial stock build in the first half of 2015 is inevitable before the market returns to balance by the end of second half,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said June 5. “The current status of fundamentals suggests that the path of least resistance for oil prices is down.”

The battle for market share among global producers has just started, the International Energy Agency said May 13.

Oil production is a sovereign right, Saudi Oil Minister Ali al-Naimi said June 5, when asked about OPEC producing above its target. His nation is deploying the most rigs in at least two decades and operating with the lowest spare production capacity in about three years.

Iran Production

OPEC’s meeting came three weeks before a deadline for a deal on Iran’s nuclear program that may lead to a lifting of sanctions that have crimped the country’s oil exports.

Iranian Oil Minister Bijan Namdar Zanganeh presented a letter urging OPEC to make way for his country to pump 4 million barrels a day, back to the level of about 2008 before Western sanctions intensified. Iran produced 2.8 million barrels a day in May, according to data compiled by Bloomberg.

Iraq, the second-largest OPEC producer, will increase exports this month as fighting with Islamic State militants spares its biggest-producing regions, the country’s oil minister said June 3.

“Everybody wants to produce and nobody wants to cut,” Michael Hiley, head of over-the-counter energy trading at LPS Partners Inc. in New York, said by phone June 5. “Oil has to go back down if you need to balance supply and demand.”

U.S. production climbed to 9.59 million barrels a day in the week ended May 29 and will average 9.19 million this year, the most since 1973, government data show. Oil explorers pulled rigs out of fields for the 26th straight week, Baker Hughes Inc. data show.

Lowest Level

Money managers’ net-long position in WTI slipped by 501 contracts to 244,626 futures and options. Longs dropped 6,110 to 303,942, the lowest level since March, while shorts fell 5,609 to 59,316.

Bullish bets on Brent crude slid for a fourth week, the longest falling streak since July 22, according to data from ICE Futures Europe. Net-long positions fell to 208,255 contracts last week from 222,357 in the period to May 26.

In other markets, net bullish bets on Nymex gasoline rose 16 percent to 27,276. Futures gained 3.3 percent to $2.0648 a gallon on the exchange in the reporting period.

Net bearish wagers on U.S. ultra low sulfur diesel increased 22 percent to 5,774. The fuel climbed 2.4 percent to $1.9455 a gallon.

Net-short wagers on U.S. natural gas almost tripled to 81,917. The measure includes an index of four contracts adjusted to futures equivalents. Nymex natural gas fell 4.4 percent to $2.698 per million British thermal units during the report week.

OPEC members didn’t discuss individual quotas and the decision to maintain the output target was unanimous, Qatar Energy and Industry Minister Mohammed Al Sada said.

“OPEC didn’t feel like they needed to rein in production, so they didn’t have to go after specific countries,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone June 5. “They will keep producing above their quota.”

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