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Oil speculators shrug off huge stockpiles to bet on price climb

Monday, February 15, 2016 - 13:37
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Oil resumed its decline below US$30 a barrel as Iran loaded its first cargo to Europe since international sanctions ended and Chinese crude imports dropped from a record.

[NEW YORK] Oil stockpiles at an 86-year high and warnings of a persistent glut weren't enough to keep money managers from betting that prices are ready for a rebound.

Speculators' long positions in West Texas Intermediate crude climbed to the highest since June as oil sank toward a 12- year low, according to US Commodity Futures Trading Commission data. Despite a 12 per cent rally Friday, WTI finished last week down 4.7 per cent. Prices on Monday slid 0.7 per cent to US$29.25 a barrel at 1:11 pm Singapore time.

Oil companies including Chevron Corp. and Anadarko Petroleum Corp. have said they will reduce outlays to maintain cash. A group of 44 North American exploration and production firms are planning to spend US$78 billion on capital projects this year, down from US$101 billion last year, according to IHS Inc.

"There are a growing number of people that think the market has put in a bottom," said Phil Flynn, senior market analyst at Price Futures Group in Chicago. "There's a growing realization after all the announcements of cuts in capital expenditures that we're going to see a drop in production."

The increase in bullish bets comes even as the world's biggest oil companies lamented the state of the market at International Petroleum Week in London. 

"The oil industry is facing a crisis," said Patrick Pouyanne, CEO of Total SA, Europe's biggest refiner. BP Plc boss Bob Dudley described himself as "very bearish."

The International Energy Agency increased its estimate for excess global supply during the first half of the year by 250,000 barrels a day. Concern that the glut is worsening drove the discount for front-month futures versus a month later to the widest since 2011. The bigger contango has encouraged traders looking to store oil to sell at a higher price in the future to rent more-expensive supertankers as onshore tanks fill up.

Inventories at Cushing, Oklahoma, the delivery point for WTI, rose to a record in the week ended Feb 5, and nationwide supplies hover near the highest since 1930, Energy Information Administration data show.

Speculators' long position in WTI rose by 1,152 contracts to 302,384 futures and options in the week ended Feb 9, CFTC data show. Shorts, or bets that prices will decline, slipped 2.1 per cent. Net-longs increased 5 per cent to a three-month high.

Trading volume jumped to a record high on Thursday when prices sank to the lowest level since 2003. Volatility is also surging. The CBOE Crude Oil Volatility Index, which measures expectations of price swings, climbed to the highest level in seven years Friday.

In other markets, net bearish wagers on US ultra low sulfur diesel decreased 6.8 per cent to 22,157 contracts. Diesel futures slid 3.6 per cent in the period. Net bullish bets on Nymex gasoline slipped 1.9 per cent to 14,056 contracts as futures dropped 10 per cent.  A Wood Mackenzie report last week showed that just 100,000 barrels a day of output has been shut in so far because of low prices. That doesn't include natural declines in production from aging fields.

"We've become very impatient," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "The investment cuts will result in falling US production this year, it just takes a while."

BLOOMBERG