OPEC deal makes oil investors most bullish since slump began
Investors are the most optimistic on oil since the slump began 2 and a half years ago.
Money managers boosted bets on rising West texas Intermediate crude costs to the highest level since July 2014 after the Organization of petroleum exporting Countries and producers outside the cluster agreed to coordinate crude production cuts. costs advanced to a 17-month high on Dec. 12 on speculation that the curbs can reduce the global inventory glut next year.
"There’s been a full embrace of the opec, non-OPEC deal," John Kilduff, a partner at again Capital LLC, a new York-based hedge fund that focuses on energy, said by telephone. "They are being given the benefit of the doubt. The consensus is that supplies can tighten quickly and as a result investors are positioning for higher costs in the close to term."
Hedge funds increased wagers on rising WTI by 2.5% in the week ended Dec. 13, U.S. commodity Futures trading Commission information show, whereas shorts, or bets on lower costs, tumbled 30 minutes to the lowest level since may. WTI advanced 4wd to $52.98/bbl in the report week. costs settled at $52.12/bbl in new york on Mon.
Money managers increased net-long positions in brent crude by 25,276 contracts to 477,861, extending the record in ICE Futures Europe information going back to 2011.
OPEC agreed on November. 30 in vienna to reduce output by 1.2 MMbopd to 32.5 MMbopd for 6 months starting in January. On Dec. 10, the cluster was joined by different producers, including Russia and kazakhstan, who pledged to trim offer by 558,000 bopd.
"Money managers have loaded up on the long side of the market," Tim Evans, an energy analyst at Citi Futures Perspective in new york, said by telephone. "They are looking for higher costs and therefore their fortunes are closely connected to the rate of compliance to these production cuts."
In the past, opec countries and their partners have usually struggled to fully deliver promised output cuts due to a reluctance to cede sales volumes and market share to competitors. Former saudi arabian Oil Minister Ali al-Naimi said on Dec. 2 that, in the history of opec agreements, “the unfortunate part is we tend to cheat.”
Oil stockpiles can decline by regarding 600,000 bpd in the next six months as curbs by opec and its partners go, the International Energy Agency said in a monthly report on Dec. 13. The IEA previously assumed inventories wouldn’t drop till the end of 2017. opec said a day later that the production curbs won’t result in demand exceeding offer till the second half of next year.
"If opec doesn’t adhere closely to the production cuts and supply exceeds demand in the half of 2017, these cash managers won’t be happy," Evans said.
Money managers’ net-long position in WTI rose by 32,661 futures and options to 303,146, a fifth week of increases.
U.S. oil companies are using the rally to hedge their price risk for the next 2 years, potentially boosting output next year. Producers’ short positions, protecting against a call costs, increased to 670,158 contracts, the most since August 2007.
In november 2014, saudi arabia led opec in adopting a pump-at-will policy. The group, that provides roughly 400th of the world’s crude, decided to fight for market share against higher-cost rivals like U.S. shale producers, exacerbating a worth collapse.
"The Saudis have decided to take the steps needed to finish the two-year glut," Kilduff said. "Investors are counting on it."