Hedge funds play it safe ahead of make-or-break week for crude

Credit - Bloomberg

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Investors played it safe on US crude ahead of a make-or-break week for oil markets.

Tuesday 04, December 2018

(Bloomberg)--Money managers cut total positions on West Texas Intermediate crude to the lowest level in five years, according to US data released Friday. They shed bearish bets faster than bullish ones, leaving the net-long position higher for the first time in 12 weeks.

Oil spiralled to its worst monthly loss in a decade in November, beset by worries about a looming global supply glut. But Russia and Saudi Arabia have agreed to extend their cooperation on oil markets into 2019, with OPEC+ set to hold talks this week on a potential production cut. Investors don’t want to risk getting caught on the wrong side of a rebound, said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC.

“A lot of people who caught some of the downdraft in prices in October and November have moved to the side lines and were looking to take some profits off the table," Kettenmann said in a phone interview.

Russian President Vladimir Putin announced the extension to the OPEC+ deal after a meeting Saturday on the sideliners of the Group of 20 summit with Saudi Arabian Crown Prince Mohammed bin Salman. That’s a prelude to a 6 December OPEC meeting in Vienna where the cartel and its allies will consider a cut of one million barrels a day or more. An OPEC advisory committee recommended a 1.3 million-barrel cut, according to a delegate.

“There is no final decision on volumes, but together with Saudi Arabia we will do it,” Putin told reporters about extending the agreement in Buenos Aires. “And whatever number there will be based on this joint decision, we agreed that we will monitor the market situation and react to it quickly.”

Because the bets on falling prices shrank faster, net-long positions on WTI -- the difference between bullish and bearish wagers, edged up 2.6 per cent to 155,023 options and futures contracts as of 27 November, the US Commodity Futures Trading Commission reported.

WTI, which settled at $50.93 a barrel 30 November, jumped 5.4 per cent as of 10:30 p.m. Sunday New York time.

Bulls may get a further boost after Alberta’s provincial government announced Sunday a production cut of 325,000 barrels a day, in an effort to ease a regional glut. Canada is the largest foreign supplier to the US.

Sentiment on Brent crude was more negative. Net-long positions on the international benchmark slid for the ninth straight week to the least bullish point in about three years, according to ICE Futures Europe data. Bets on falling prices, meanwhile, were the highest since August 2017.

Investors have been losing faith in international producers’ ability to agree on a cut, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. There may be an inkling of more optimism for US prices, he said.

“The economy is still looking strong," Lynch said. “And the Americans may just be expecting that lower prices will have an effect sooner rather than later and force production cuts in the US."

TAGS : Chris Kettenmann, Macro Risk Advisors LLC, OPEC, Vladimir Putin, Group of 20, Michael Lynch, Strategic Energy & Economic Research

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