- U.S. benchmark crude surged Thursday by most since March 2009
- Signs U.S. economy is strengthening helped fuel rally
Hedge funds couldn’t have timed an increase in bullish oil positions better, just before improving prospects for U.S. growth sent crude on its biggest two-day rally in six years.
Money managers boosted their net-long position in West Texas Intermediate crude 6.2 percent last week, days before futures surged 17 percent in the last two sessions, U.S. Commodity Futures Trading Commission data show.
Signs of a strengthening economy in the U.S., the world’s biggest crude consumer, helped drive the sudden rebound after concerns that demand will wane in China had pushed futures to six-year lows. America’s gross domestic product increased 3.7 percent in the second quarter, more than most analysts had expected, and consumer purchases climbed in July as incomes grew.
"There was some buying interest even as the market was making new lows," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "It looks like low prices were seen as a buying opportunity." The net-long positions in WTI advanced by 5,770 contracts to 99,176 futures and options in the week ended Aug. 25, according to the CFTC data. Longs rose 1.7 percent, while shorts decreased 1 percent, the third decline in four weeks.
WTI touched $37.75 a barrel on Aug. 24, the lowest level since February 2009, but the surge in the last two sessions left futures 12 percent higher for the week at $45.22 on Friday. Prices surged another 8.8 percent to $49.20 a barrel on the New York Mercantile Exchange Monday. It was the highest settlement since July 21.
"There was bound to be some short-covering and bargain hunting on the agenda once prices fell to six-year lows," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "It was time for a slight lurch towards testing the waters to the long side."
U.S. crude stockpiles fell to 450,761 million barrels in the week ended Aug. 21 from a peak of 490,912 million in April, Energy Information Administration data show. They remain almost 100 million barrels above the five-year seasonal average.
In other markets for the week, net bullish bets on Nymex gasoline increased 37 percent to 20,071, the highest level in 10 weeks. Futures tumbled 13 percent in the period covered by the CFTC report to $1.4386 a gallon. Net bearish wagers on U.S. ultra-low-sulfur diesel increased 14 percent to 33,481 contracts, the most since October. Diesel futures dropped 10 percent in the period to $1.3952 a gallon.
This "will be a heck of a week," Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. "I think we’ll just catch our breath for a bit before resuming our move lower. Refinery maintenance is coming and with it less demand."
U.S. refineries operated at 94.5 percent of their capacity on Aug. 21, down 0.6 percentage point from the prior week and the lowest since June, EIA data show. Refiners cut operating rates during September in nine of the past 10 years and gasoline demand dropped with end of the summer driving season, which will end with Labor Day on Sept. 7.
"There’s nothing bullish on the demand side for at least the next couple of months," Wittner said.