[NEW YORK] Opec's first deal to cut output in eight years has spurred a running of the oil bulls.
Prices surged, breaching US$50 a barrel, since the Organization of Petroleum Exporting Countries agreed to the cut on Sept 28 in Algiers. The group, which pumped at a record in September, will decide on quotas for its members at an official meeting in Vienna on Nov 30.
Futures also got a boost from a five-week long stretch of falling US crude stockpiles.
"The market went haywire in the week and a half after the Opec agreement," said Stephen Schork, president of the Schork Group Inc, a consulting company in Villanova, Pennsylvania. "The bulls were ready and really jumped in. Since Opec, there's been a tick, tick, tick higher." Money managers increased long positions in West Texas Intermediate crude futures and options to the highest level in more than two years during the week ended Oct 4, according to the Commodity Futures Trading Commission. Bets on falling prices dropped for a second week.
WTI futures increased 9 per cent to US$48.69 a barrel in the report week. Crude closed above US$50 on Oct 6 for the first time since June 9. Prices slipped 1.3 per cent to close at US$49.81 on Oct 7.
"This is the post-Opec wave," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "This market has rewarded the Opec rhetoric. Let's see if their deeds match their words."
The Opec deal, which would trim output to a range of 32.5 million to 33 million barrels a day, is due to be finalised at the Vienna summit next month. While Opec will decide on quotas for individual members, there may also be exemptions for nations including Iran, which is increasing production after the lifting of international sanctions in January.
"They left certain unanswered questions," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "We'll have to see if they formulate targets at the Nov 30 meeting in Vienna and then have to wait to see what's the ultimate rate of compliance. This is a story that will continue well into the first quarter of next year."
US crude stockpiles dropped by 2.98 million barrels to 499.7 million in the week ended Sept 30, the lowest since January, Energy Information Administration data show. Inventories reached 543.4 million barrels in the week ended April 29, the highest since 1929.
Money managers' long position in WTI, or bets on rising prices, climbed to 353,162 futures and options. Shorts fell 30 per cent. The resulting net-long position increased 40 per cent to the highest level since May 2015.
In other markets, net-bullish bets on gasoline rose 33 per cent to 30,737 contracts, the highest since March, as futures increased 7.6 per cent in the report week. Wagers on ultra low sulfur diesel went from net short to net long. Futures climbed 10 per cent.
The fundamentals don't support prices at this level, according to Mr Schork. Opec has yet to agree on specific cuts and US crude stockpiles remain at the highest seasonal level in more than 20 years.
"There's been a lot of hype about the agreement although we won't see any cut until next year," Mr Schork said. "Momentum is in the bulls' favour. There comes a point when you have to stop beating your head against the wall and my head is sore."