Speculators reduced bullish wagers on oil to the lowest level in eight weeks as OPEC’s biggest members pumped record amounts of crude.
Hedge funds trimmed their net-long position in West Texas Intermediate oil by 3.7 percent in the seven days ended June 9, U.S. Commodity Futures Trading Commission data show. Longs tumbled to the lowest in five months.
Saudi Arabia, Iraq and the United Arab Emirates are pumping record amounts of oil, the International Energy Agency said last week. While the Organization of Petroleum Exporting Countries reiterated its target for the group’s output this month, in reality it has been producing more than that for a year. The IEA also raised its estimate for non-OPEC supply, underscoring concern that the supply surplus won’t ease any time soon.
“The OPEC agreement affirms the established policy, which appears to be that members can pump as much oil as they want,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone June 12. “The IEA also revised non-OPEC production because U.S. output has been a lot more robust than expected.”
Futures fell $1.12 to $60.14 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, settling at $59.96 June 12. WTI traded in an $8 range the past eight weeks after tumbling more than $65 from June to March. The grade lost 24 cents to $59.72 at 11:42 a.m. Singapore time on Monday.
Drilling Rigs
The Energy Information Administration increased its outlook for 2015 U.S. supply by 240,000 barrels a day to 9.43 million. Despite a record decline in rigs drilling for oil, first-quarter output was higher than estimated as producers worked to reduce a backlog of uncompleted wells, the EIA said June 9.
U.S. drillers have reduced the number of operating oil rigs for a record 27 weeks to the lowest level in almost five years, according to Baker Hughes Inc.
“U.S. production has beat expectations because we’ve been focused on the weekly drilling rig data,” Evans said. “We’ve not counted on productivity gains.”
Production will fall from June through early 2016 as supply from shale formations such as North Dakota’s Bakken and Texas’s Eagle Ford shrinks. Shale output will drop 1.3 percent this month, the EIA said June 8.
The net-long position in WTI fell by 9,106 contracts to 235,520 futures and options. Longs slipped 3.2 percent to 294,157, while shorts dropped 1.1 percent.
‘New Territory’
The drop in open interest means traders “are less likely to move the market into new territory,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “We’ve retreated after banging against the top of the range.”
In other markets, net bullish bets on Nymex gasoline dropped 28 percent to 19,660, the lowest in eight weeks. Futures rose 0.6 percent to $2.0771 a gallon on the exchange in the reporting period.
Net bearish wagers on U.S. ultra low sulfur diesel increased 18 percent to 6,825 contracts. The fuel slipped 1.4 percent to $1.9179 a gallon.
Net-short wagers on U.S. natural gas climbed 20 percent to 98,664. The measure includes an index of four contracts adjusted to futures equivalents. Nymex natural gas rose 5.5 percent to $2.846 per million British thermal units.
A narrowing contango, in which near-term deliveries are cheaper than longer-dated contracts, is laying the groundwork for a price rally, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone June 12. Rising crude demand at refineries and an expected decline in U.S. production are the main causes, he said.
Refineries in the U.S. operated at 94.6 percent of capacity in the week ended June 5, the highest level since December, EIA data show. That helped shrink crude stockpiles by 6.81 million barrels to the lowest in 11 weeks.
“Inventories should fall further in the weeks ahead, which should support prices,” Lynch said.
