Hedge Funds Cut Bullish Oil as Iraq Sent Prices Higher

Hedge funds reduced bullish bets on West Texas Intermediate crude for a second week, missing out on a rally to the highest in almost nine months amid escalating conflict in Iraq.

Money managers reduced net-long positions, or wagers on rising prices, by 0.4 percent in the seven days ended June 10, the U.S. Commodity Futures Trading Commission said. Bullish positions reached a record 348,069 contracts as of May 27.

WTI rose $2.56 a barrel in the three days after the report as the Islamic State in Iraq and the Levant, known as ISIL, extended its advance in Iraq, triggering concern of a return to civil war that would disrupt oil supplies from OPEC’s second-biggest producer. Prime Minister Nouri al-Maliki’s Shiite-led government is struggling to retain control of Sunni-majority regions after his army units in northern Iraq collapsed amid the advance. U.S. President Barack Obama said that he wouldn’t commit troops to Iraq.

“These submission of this data came before the emergence of ISIL,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “People were caught by surprise. From a trader’s perspective, this is a very dangerous market.”

Prices gained 38 cents to $106.91 cents a barrel today on the New York Mercantile Exchange, capping the biggest weekly gain this year. Hedge funds and other money managers cut net-long positions in WTI by 1,325 contracts to 341,680 futures and options. Long positions fell by 2,911 contracts and shorts dropped 1,586.

Iraq Output

Iraq produced 3.3 million barrels a day of crude last month, data compiled by Bloomberg show. The country’s crude output capacity will increase by more than 1.2 million barrels a day in the six years through 2019, the International Energy Administration projected in its monthly oil market report today.

The Organization of Petroleum Exporting Countries left its output ceiling unchanged at 30 million barrels a day at a meeting in Vienna this week.

ISIL forced a halt to repairs at the main pipeline from the Kirkuk oil field to the Mediterranean port of Ceyhan in Turkey when it overran Mosul.

“The situation in Iraq changed so rapidly this week,” said Sarah Emerson, managing principal of ESAI Energy Inc. in Wakefield, Massachusetts. “Mosul fell one day and the next day the militants were marching on Baghdad.”