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Hedge funds back off oil as Saudis keep market on its toes

Money managers once again cut bets on rising oil prices — the longest streak of declines since 2013.
As investors digest the signals of increasing supplies from Saudi Arabia and Russia, and the US is said to back the idea, futures have slumped 9 per cent in less than three weeks. Total positioning on West Texas Intermediate is the lowest in almost a year ahead of an Opec meeting in Vienna on June 22 and 23.

“The commentary out of Saudi Arabia and Russia about easing the supply restrictions just undercut the bullish narrative that had built into the market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s obviously going to be a very contentious meeting.”
Meanwhile, US output has risen so much that it’s overwhelming pipeline infrastructure and forcing drillers at the prolific Permian region of West Texas and New Mexico to sell their crude at growing discounts.
“There is potentially more volume coming,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. On the WTI side, “investors are finally catching up with reality. There is a lot of production online. There’s not the midstream capacity to move this stuff out of the Permian and into the Gulf Coast.”

Hedge funds reduced their WTI net-long position — the difference between bets on a price increase and wagers on a drop — by 3.3 per cent to 313,450 futures and options during the week ended June 5, the lowest level since October 2017, according to the US Commodity Futures Trading Commission. Longs also slid 3.3 per cent, while shorts fell 2.8 per cent.
Money managers were also less bullish on Brent crude, gasoline and diesel.
Technical breakdown
WTI has closed below its 50-day moving average every day since the start of the month, a bearish signal. Plus, during the CFTC report week, it slid below the 100-day moving average.
“You’ve seen a bit of a technical breakdown in the trend,” said Rob Haworth, who helps oversee $151 billion in assets at US. Bank Wealth Management in Seattle. And “the news flow has changed. The tightness that you were seeing in Opec production is now starting to loosen up.”

Source: Gulf News

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