Oil’s sudden slump seems to have caught optimists by surprise.
Hedge funds increased wagers on rising Brent crude prices for an eighth straight week, the longest streak since 2012, according to ICE Futures Europe data for the seven days through February 26.
But the enthusiasm has proved to be misplaced, at least for now. The international benchmark posted a weekly loss for the first time since early February as President Donald Trump warned Opec to “take it easy’ in cutting supplies and US economic data fell short of expectations. Brent lost 3.1 per cent for the week, after rising 25 per cent to start the year.
Crude has rallied this year as Russia and the Organisation of Petroleum Exporting Countries curbed output to offset a global supply glut, while US sanctions isolated major suppliers Iran and Venezuela. Yet an uneven economic outlook, record-smashing American production and worries about the US-China trade war have cast a shadow over sentiment.
“It’s sort of really push-pull in the short term between some fairly constructive bullish set-up on the supply side but really overshadowed by questions on the demand side,’ said Tamar Essner, director for energy and utilities at Nasdaq Corporate Solutions in New York. “At the same time, you also have Trump doing everything to push for lower oil prices.’
Hedge fund bets suggest they believe the longer-term picture is still bright. Opec production fell by more than a half-million barrels in February, according to a Bloomberg survey. US drilling-rig activity, meanwhile, hit a 9-month low last week, as investors push companies for spending cuts amid the uncertain outlook.
“We’re continuing to see evidence these rig counts are falling,’ said Ashley Petersen, lead oil market analyst at Stratas Advisors in New York. “We’re getting this on-the-ground evidence of a more stable supply picture.”
Here’s a look at how hedge funds bet:
The latest information on West Texas Intermediate positioning wasn’t available, as the US Commodity Futures Trading Commission is still releasing older data following the government shutdown. The agency is expected to finally issue up-to-date numbers next Friday.