Hedge Funds Dump Crude Oil as Iran Deal Threatens Prolonged Glut

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Speculators cut bullish bets on oil to the lowest level since March because an agreement over Iran’s nuclear program threatens to prolong a global supply glut.

Money managers reduced their net-long position in West Texas Intermediate crude by 15 percent in the week ended July 14, U.S. Commodity Futures Trading Commission data show. Longs dropped 7.9 percent and short wagers rose 4.2 percent. Bullish bets on Brent crude rose.

Iran, holder of the fourth-biggest crude reserves, may be able to increase exports as soon as December if it complies with the terms of its nuclear accord with world powers. That would add to record output from Saudi Arabia and Iraq and come at a time when the Organization of Petroleum Exporting Countries is pumping the most in almost three years.

“Iraqi production’s rising, Saudi Arabia increased production, total OPEC production is trending higher,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone July 17. “Rebalancing keeps getting pushed further into the future every time OPEC production increases another barrel.”

WTI futures rose 71 cents to $53.04 a barrel on the New York Mercantile Exchange in the CFTC period. The U.S. benchmark grade slipped to $50.89 on July 17, the lowest closing price since April 9. Futures slid 81 cents to $50.08 a barrel at 1:58 p.m. New York time Monday.

The U.S., China, Russia, the U.K., France and Germany reached the deal with Iran in Vienna on July 14. Full implementation depends on Iran meeting obligations to curb its nuclear program.

Iran Deal

Iran has until Dec. 15 to answer 12-year-old questions about its weapons capabilities. Once inspectors verify compliance, the nation will be allowed to ramp up energy exports, re-enter the global financial system and gain access to as much as $150 billion in frozen assets.

The country has urged fellow OPEC members to make way for it to pump 4 million barrels a day when sanctions are lifted, up from 2.85 million in June, according to data compiled by Bloomberg. Iran could boost daily exports by 500,000 barrels within a year of full implementation, Clearview Energy Partners LLC said in a research note.

Record Output

Saudi Arabia, the world’s biggest oil exporter, pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to OPEC. Iraq boosted production to 4.388 million in June, the highest level in records dating back to 1985, according to data compiled by Bloomberg.

Global markets remain “massively oversupplied,” the International Energy Agency said July 10. Demand for OPEC’s crude will climb next year by 900,000 barrels a day to average 30.1 million, according to the IEA, about 1.2 million less than the group estimated it pumped in June.

Futures also declined on concern that unsettled markets in China and Europe may hurt demand. Equities in China, the world’s second-biggest oil consumer, lost more than $3.5 trillion of value in less than a month. The euro weakened 3 percent last week against the dollar after Greece reached an agreement with its creditors over the reforms needed to start talks for a third bailout in five years and remain in the euro.

The net-long position in WTI dropped 26,521 to 147,205 futures and options combined in the week ended July 14, the CFTC said. Longs fell to 256,779 and shorts climbed to 109,574. In London, bullish bets on Brent rose by 22,236 contracts, or 11 percent, to 228,046 lots in the same week.

Other Markets

In other markets, bullish bets on Nymex gasoline rose 64 percent to 12,882. Futures dropped 1 percent to $1.9307 a gallon on the exchange in the reporting period. Bearish wagers on U.S. ultra low sulfur diesel increased 7.5 percent to 18,755. The fuel gained 0.8 percent to $1.7253 a gallon.

“Anybody who bought oil this week is under water,” Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners Inc., a futures brokerage, said by phone July 15. “If there is speculative length out there, they are trying to get out now. The market is still over-supplied even without the Iranian deal.”

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