Oil Investors Shrug Off U.S. Election While Focused on OPEC

  • Bets on lower WTI crude prices climb most since May 2012: CFTC
  • OPEC scheduled to finalize cuts by Nov. 30 meeting in Vienna

BP's Dudley Says Oil Supply and Demand Generally Balanced

Oil investors seem to be the only ones uninterested in Donald Trump’s election. 

Money managers raised bets on falling oil prices by the most in more than four years in the week leading up to Trump’s surprise win, amid waning belief in OPEC’s ability to meaningfully cut production. Members of the Organization of Petroleum Exporting Countries are due to meet Nov. 30 to finalize a deal to curb output. Failure to reach one may send oil lower amid “relentless global supply growth,” the International Energy Agency said Nov. 10.

“The market is focused on the OPEC meeting,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “It’s looking like the obstacles to an agreement are getting bigger with both Iraq and Iran raising new issues.”

The rally that followed OPEC’s preliminary deal reached in Algiers on Sept. 28 has evaporated, sending speculators scrambling. A surge in West Texas Intermediate short positions, or wagers the U.S. benchmark crude will decline, helped send the resulting net-long position to the biggest slump since May 2012 in the week ended Nov. 8, Commodity Futures Trading Commission data show. Brent shorts surged, posting the biggest increase in more than five years.

WTI dropped 3.6 percent to $44.98 a barrel in the report week. Prices surged 5.8 percent to $45.81 a barrel on Tuesday, the biggest gain in seven months and a rebound from the lowest close in eight weeks.

Futures rose 0.6 percent on Nov. 9 amid speculation Trump and a Republican-controlled Congress will pursue business-friendly policies. The market declined the following three days as the dollar climbed to the highest level in more than nine months against its peers, curbing investor interest in commodities priced in the U.S. currency.

OPEC Obstacles

“Trump’s win is having no direct effect on oil,” said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “It’s having a tertiary impact because it’s strengthened the dollar.”

Saudi Arabia, Iraq and Iran, OPEC’s three biggest producers, are at odds over how to share output cuts, according to a delegate from the group who asked not to be identified because the discussions are private. Qatar, Algeria and Venezuela are leading a push to overcome the divide, the delegate said. 

Iraq has sought an exemption from joining any production cuts, arguing that its fight against Islamic State justifies special treatment. Iran has insisted it won’t accept any limits on its production until it has returned to the pre-sanctions level of about 4 million barrels a day. The nation told OPEC that it raised output to 3.92 million in October.

OPEC’s 14 members raised production by 230,000 barrels a day to 33.83 million last month as Iraqi output reached a record and Nigeria and Libya restored halted supplies, IEA data showed Nov. 10.

“Last week we had the IEA and OPEC reports which showed that production was significantly higher October than the previous months,” Wittner said. “The re-balancing of the market continues to get pushed back.”

Money managers’ short position in WTI climbed by 82,791 to 145,319 futures and options, the highest in two months, the CFTC said. Longs rose 2.7 percent.

In the Brent market, money managers increased short positions by 65 percent to 142,055 during the week, the highest level since October 2014 and the biggest gain since March 2011, according to data from ICE Futures Europe. The net-long position in the global benchmark rose by 23 percent during the week, the biggest increase since September 2014.

In fuel markets, net-bullish bets on gasoline decreased 4.8 percent to 39,846 contracts, the first decline in two months, as futures slipped 7.7 percent in the report week. Wagers on higher ultra low sulfur diesel prices tumbled 55 percent to 9,511. Futures declined 5 percent. 

“There’s huge uncertainty about what Trump will do and how that will impact the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are certain about one thing, and that’s the fact that there’s way too much oil out there.”

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