Washington: Oil investors are playing it safe as Opec hammers out the details of a deal to trim output.
Money managers reduced bets on falling prices to the lowest since May as oil held above $50 (Dh183.5) a barrel, prolonging a rally that began when the Organisation for Petroleum Exporting Countries announced a deal to cut production to between 32.5 million and 33 million barrels a day. The group plans to finalise the agreement at a meeting in Vienna on November 30.
“The shorts are not laughing off this Opec deal anymore,” Phil Flynn, a market analyst at Price Futures Group in Chicago, said in a phone interview. “There’s a growing realisation that there’s going to be a deal to lock in production. Things will be relatively calm until we get the agreements.”
Saudi Arabia’s energy minister Khalid Al Falih said October 19 that many nations are willing to join Opec in cutting production. So far, Russia has said it’s considering taking steps to stabilise the market. Alexander Novak, the country’s energy minister, said Sunday that “many scenarios” are being discussed. Venezuela President Nicolas Maduro, on a tour of oil-producing countries to boost support for the deal, said October 21 he’s in favour of inviting the US to the next Opec meeting and creating an “alliance” of Opec and non-Opec nations.
“This week the market is in a pause after the run-up to $50,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There’s still a lot of question about what Opec is actually going to do next month. Absent that, people are waiting for some more direction than we have now.”
In addition to slashing short bets in West Texas Intermediate crude by 21 per cent during the week ended October 18, hedge funds also reduced their long positions by 3.2 per cent from a two-year high, according to the Commodity Futures Trading Commission. Net longs increased to the highest in two years.
WTI slipped 1 per cent during the report week to $50.29 a barrel. The US benchmark dropped 0.5 per cent to $50.58 at 12:28 pm Singapore time. Prices reached a 15-month high Oct. 19 after government data showed US crude stockpiles fell to the lowest level since January.
Real consequences
US crude stockpiles dropped 5.25 million barrels to 468.7 million in the week ended October 14, Energy Information Administration data show, after reaching 512.1 million in late April.
“$50 will be the floor through the Opec meeting, barring some spike in the dollar,” Flynn said. “With US inventories falling at a rapid pace the prospect of a cut or freeze has real consequences.”
In other markets, net-bullish bets on gasoline rose 9.4 per cent to 40,085 contracts, the highest since March 2015, as futures climbed 1.5 per cent in the report week. Ultra low sulfur diesel net-longs fell 7 per cent to 8,439. Futures slipped 1.2 per cent.
WTI held above $50 a barrel even as Russia’s energy minister said the country may hit a new oil-output record next year. As Opec members head into technical meetings October 28-29, investors will be watching for details on country allocations. Iraq should be exempted from cutting production, Oil Minister Jabbar Al Luaibi said Sunday.
“The market just wants to see the proof in the pudding,” said Carl Larry, director of oil and gas at consultant Frost & Sullivan in Houston. “We got to $50. That’s as good as it’s getting, going into the November election and the actual Opec meeting.”
