Oil bulls finally caught a break as prices capped their first weekly advance since November.
Hedge funds raised their net-long position in West Texas Intermediate crude by 12% in the week ended January 13, US Commodity Futures Trading Commission data show.
Long wagers jumped the most since March 2011.
WTI climbed 6.1% in the three days following the report period, after dropping more than 50 percent since June.
US oil drillers took a record number of rigs out of service since December 5, spurred on by OPEC’s decision to maintain output.
Production growth will slow this year among countries outside of OPEC, the International Energy Agency said January 16.
“People are willing to buy into the market at these price levels,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone January 16.
“It suggests that they think that the odds of us going much lower are small.”
WTI fell $2.04, or 4.3%, to $45.89 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, dropping to $44.20 on January 13, the lowest price since 2009.
Futures rallied to $48.69 by January 16, bringing the advance for the week to 0.7%.
WTI traded at $48.20 at 10:31 a.m. London time.
Investors have put $1.11 billion into the four biggest oil exchange-traded products so far this month on top of $1.23 billion in December, the biggest monthly gain since 2010, according to data compiled.
The IEA lowered its non-OPEC supply growth estimate by 350,000 barrels a day last week, the first cut since the 2015 forecast was introduced in July.
That will lead to a “rebalancing” of oversupplied markets in the second half, reviving prices, the agency said.
The US Energy Information Administration reduced its 2015 U.S. production outlook in a January 13 report by 10,000 barrels a day to 9.31 million.
The drop in the US oil rig count of 209 was the steepest six-week decline since Baker Hughes Inc. (BHI) began tracking the data in July 1987. The total tumbled 55 in the week ended January 16 to 1,366.
“The rig count fell pretty dramatically and people were speculating that there could be more cutbacks in production,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone January 16. “That was a momentum changer.”
The Organization of Petroleum Exporting Countries kept its output above quota for a seventh month in December, according to data compiled.
The group, which pumps about 40% of the world’s oil, decided in a November meeting to maintain its production target, favoring market share over higher prices.
Goldman Sachs Group Inc. said last week that US crude oil may fall below the bank’s six-month forecast of $39 and rallies may be thwarted by the speed at which any lost shale output can recover.
WTI may fall to $32 by the end of this quarter, Francisco Blanch, an analyst with Bank of America in New York, said January 15.
“You can always undershoot to the downside,” Jeff Currie, Goldman’s head of commodities research, said January 14 in an interview.”
Net-long positions for WTI gained 24,637 to 224,032 futures and options in the week ended January 13, according to the CFTC.
Long positions jumped 38,569 to 311,973 and short bets climbed 13,932 to 87,941.
In other markets, bearish wagers on US ultra low sulfur diesel increased 23% to 29,273 contracts as the fuel dropped 5.4% to $1.633 a gallon in the report week.
Net short wagers on US natural gas gained 70% to 17,513.
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 US Henry Hub contract.
Nymex natural gas gained 0.2%to $2.943 per million British thermal units in the week covered by the report.
Bullish bets on gasoline fell 15% to 37,255. Futures slumped 6.3% to $1.2685 a gallon on Nymex in the reporting period.
Regular retail gasoline dropped 0.8 cent to an average of $2.068 a gallon January 17, the lowest since May 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.
“These are extraordinarily cheap price levels that attract people to bet on a rebound,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone January 16. “The lower price is luring bargain hunters.”
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