Oil speculators miss surge

[NEW YORK]Speculators were the least bullish on crude in two years before prices surged as Saudi Arabia and its allies bombed rebels in Yemen, threatening supply disruptions in the largest oil-producing region.

Hedge funds and other money managers cut their net-long position in West Texas Intermediate crude by 3.8 per cent in the seven days ended March 24, US Commodity Futures Trading Commission data show. Futures jumped more than 8 per cent in the next two days before dropping 5 per cent on Friday as shipping groups said there were no disruptions for now.

Yemen lies on one side of Bab el-Mandeb, the fourth-busiest oil and fuel shipping bottleneck in the world by volume. Saudi Arabia and its allies in the fight against the Shiite rebels are among the biggest energy exporters. Oil prices were already rising because of a weaker dollar and as US refineries processed fuel at a record pace for the time of year.

"As the news of the bombing came out, prices just took off," Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees US$3.4 billion, said by phone March 26. "In the short run, this kind of behavior is not uncommon. But it's pretty hard to hold these kinds of gains." Futures jumped US$4.05 to US$47.51 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, and settled at US$48.87 on March 27.

The coalition of 10 Sunni-ruled nations is seeking to restore Yemeni President Abdurabuh Mansur Hadi to power after he was driven out of the capital by Shiite rebels with ties to Iran. Vessels pass through Bab el-Mandeb to get to the Suez Canal, a route that handles about 20 per cent of global trade and almost 7 per cent of oil and fuel cargoes.

BLOOMBERG