Hedge Funds Most Bearish on Crude in 4 Years After Rally: Energy

Hedge funds raised bearish bets on oil to the highest in more than four years, a sign they’re skeptical that a two-week 14 percent rally will last.

Short bets on West Texas Intermediate climbed 1.2 percent in the week ended Feb. 3 to the most since August 2010, U.S. Commodity Futures Trading Commission data show. Net-long positions slipped for a third week, the longest stretch of declines since August.

Prices jumped during the report week as a shrinking number of U.S. rigs drilling for crude raised speculation that output would soon retreat from a three-decade high. Oil has tumbled 47 percent in the past year amid surging U.S. supplies and OPEC’s refusal to cut production to reduce a global glut.

“It’s too early to say the drop in prices is over,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Friday. “There have been several periods of buying during this cycle that have led to the bulls getting burned.”

WTI advanced $6.82, or 15 percent, to $53.05 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, the highest this year. The contract rose $1.21 to settle at $51.69 on Feb. 6. The rally began on Jan. 27. WTI for March delivery gained $1.17 to end at $52.86 Monday.

The CBOE Crude Oil Volatility Index, which measures price fluctuations using options on the U.S. Oil Fund, ended at 63.14 Feb. 5, the most since April 1, 2009.

Baker Hughes Inc. said Friday that drillers idled rigs for a ninth week, cutting them by 83 to 1,140, the lowest since December 2011.

Different Opinions

The drop in rigs has yet to affect supplies. U.S. crude inventories expanded by 6.33 million barrels to 413.1 million in the week ended Jan. 30, the highest in weekly records compiled since 1982, Energy Information Administration data show. Crude output rose 27,000 barrels a day to 9.21 million a week earlier, the most in weekly estimates that started in 1983.

The Organization of Petroleum Exporting Countries pumped 30.91 million barrels a day in January, exceeding its target of 30 million for an eighth straight month, a Bloomberg survey showed.

Global supply will exceed demand by 2 million barrels a day in the first half of 2015, Iranian Oil Minister Bijan Namdar Zanganeh said in an interview on state TV Feb. 4.

“The bears are looking at where inventories are and what OPEC has been doing,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Feb. 6.

Refinery Strike

Talks to end the first national walkout of U.S. oil workers in more than three decades were suspended after the United Steelworkers union rejected the latest offer from Royal Dutch Shell Plc, which represents refineries in the negotiations. Bargaining will resume this week, the USW said.

Short positions in WTI increased by 1,278 contracts to 106,041 futures and options in the week ended Feb. 3, the sixth straight gain, CFTC data show. Long positions dropped 2.2 percent while net-long positions fell 3.9 percent to 207,927.

In other markets, bullish bets on gasoline climbed 0.7 percent to 52,518 contracts, the most since July. Futures advanced 19 percent to $1.6013 a gallon on Nymex in the reporting period.

Regular gasoline at U.S. pumps rebounded after dropping to the lowest level since April 2009 on Jan. 25. The average retail price rose 0.2 cent to $2.177 a gallon Sunday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Diesel Bets

Bearish wagers on U.S. ultra low sulfur diesel decreased 2 percent to 29,708 contracts. The fuel climbed 11 percent to $1.8465 a gallon in the report week.

Net-short wagers on U.S. natural gas increased 5.7 percent to 40,528 lots, the most since November 2011. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Nymex natural gas fell 7.6 percent to $2.754 per million British thermal units during the report week.

Chevron Corp., BP Plc and Royal Dutch Shell Plc cut spending targets after crude slumped. Weatherford International Plc, an oilfield services company that’s lost half its value in six months, plans to cut 5,000 jobs in the first quarter, joining larger competitor Schlumberger Ltd. in responding to lower oil prices.

“Nothing has really changed,” Kilduff said of the oil market. “Both inventories and production are rising.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE