Hedge funds cut bullish oil wagers for the first time in three weeks as US employers added fewer jobs than forecast, spurring concern that an economic slowdown would curb demand.
Money managers reduced net-long positions by 5.1 per cent in the seven days ended July 10, according to the Commodity Futures Trading Commission’s Commitments of Traders report on July 13. Oil traders have trimmed wagers on rising prices by 53 per cent from a 2012 peak in the week ended February 28.
Oil has declined 12 per cent this year, trading as low as $86.58 a barrel today in New York as economic growth slowed in the US and Europe, dimming prospects for demand. The Labour Department reported on July 6 that US payrolls rose by 80,000, fewer than the 100,000 forecast by economists surveyed by Bloomberg. Crude began a three-day rally on July 11 as stockpiles fell more than estimated and the US stiffened sanctions against Iran.
“With the bad jobs number, there wasn’t a lot of hope for demand,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by phone on July 13. “What seemed to change the mood and have us turn around a little bit is that geopolitical risk has come back on the radar.”Futures declined $3.75, or 4.3 per cent, to $83.91 a barrel on the New York Mercantile Exchange during the week covered by the report before rising to $87.10 on July 13.
Oil fell 3.2 per cent on July 6 after the employment report and International Monetary Fund Managing Director Christine Lagarde said the organisation lowered its growth estimates.
“The global growth outlook will be somewhat less than we anticipated just three months ago,” Lagarde said in a speech in Tokyo. “And even that lower projection will depend on the right policy actions being taken.”
The International Energy Agency last week cut its oil-demand growth forecast for 2012 because of the worsening economic outlook. Worldwide crude consumption will expand by 800,000 barrels a day, or 0.9 per cent, to 89.89 million barrels a day this year, the Paris-based adviser to 28 energy-consuming nations said in a July 12 report. The estimate was down 15,000 barrels a day from the June outlook.
Oil declined again on July 10 after Norway’s government stepped in to end a 16-day labour dispute that threatened to shut the country’s production platforms. About 15 per cent of the nation’s crude output was disrupted by the strike, the Oil Industry Association said on June 27. Norway, western Europe’s biggest crude exporter, pumped 1.502 million barrels a day in June, or about 1.7 per cent of global consumption, according to data from the Norwegian Petroleum Directorate.
The bearish run reversed on July 11 when a US government report showed that oil stockpiles dropped more than expected in the week ended July 6. Futures advanced 2.3 per cent after the Energy Department said supplies fell 4.7 million barrels, more than three times analyst estimates, to 387.2 million barrels, the lowest level in two months. Inventories have declined 2.3 per cent since swelling to a 22-year high last month.
The US is pumping more oil, driven by improvements in technology such as horizontal drilling and hydraulic fracturing, or fracking. The July 11 report showed that crude production advanced 2.5 per cent to 6.249 million barrels a day in the week ended July 6, 12 per cent higher than the same week last year. The US met 81 per cent of its own energy needs in 2011, the most since 1992, according to Energy Department data.
Futures rose 0.3 per cent on July 12 after the US announced additional sanctions against Iran, the second-largest producer in the Organisation of Petroleum Exporting Countries. The Treasury Department targeted front companies trying to sell Iranian crude in defiance of international curbs. The restrictions are meant to disrupt Iran’s ability to finance its nuclear and missile programs.
“The market is becoming physically tighter,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone on July 13. “Total Opec production declined in June, with the drop in Iranian supply being the most significant element.”
Production from Iran has fallen 12 per cent this year to 3.16 million barrels a day, according to data compiled by Bloomberg. Iraq overtook Iran to become Opec’s second-largest producer after Saudi Arabia last month, according to a July 11 OPEC report.
Money managers, including hedge funds, commodity pools and commodity-trading advisers, cut bullish oil wagers by 6,919 futures and options combined to 128,092 in the seven days ended July 10, the CFTC report showed.
“Traders want to get bullish, but they don’t want to hold the position for very long,” Carl Larry, president of Oil Outlooks & Opinions LLC in New York, said by phone on July 13. “You’ll see a lot of up-and-down movement in the CFTC numbers for the next couple of weeks.”
In other markets, net-short positions in heating oil contracted by 1,336 futures and options combined to 4,437, the data showed. Bets on gasoline prices rose by 1,243 futures and options combined, or 2.3 per cent, to 54,681.
Gasoline climbed 0.9 per cent to $2.7469 a gallon on the Nymex in the week covered by the report and extended its gain to $2.8161 on July 13. Regular gasoline at the pump, averaged nationwide, has declined 14 per cent since reaching a 2012 peak of $3.936 a gallon on April 4, according to Heathrow, Florida-based AAA, the largest US motoring group. The price rose to $3.388 a gallon on July 12.
Net-long bets on four natural gas contracts advanced by 3,583 futures equivalents, or 1.9 per cent, to 192,387 futures equivalents in the week ended on July 10, according to the CFTC.
The natural gas measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Natural gas fell 16.2 cents, or 5.6 per cent, to $2.737 per million British thermal units on the Nymex in the week covered by the report before rising to $2.874 on July 13.
Futures have declined 3.8 per cent this year as stockpiles expanded to seasonal records. Inventories rose 33 billion cubic feet to 3.135 trillion in the week ended July 6, the highest ever for the month, a July 12 Energy Department report showed.