Fund managers cutting speculative bets on crude oil
But little sign falling prices are hurting equity market sentiment
At what price the turning point? That’s the question energy sector investors are asking as oil is rattled by evidence of increasing US production.
West Texas Intermediate, the main US crude contract, started the week with a fall below $44 a barrel, its cheapest level since November.
The gains delivered by the Opec/Russia deal to cut output have evaporated with many believing the cause to be additional US shale-based drilling.
Consequently, the weekly update on the number of active US oil and gas rigs has become an increasingly important statistic.
The Baker-Hughes Rig Count report, released on Fridays, is up for the last 22 weeks in a row and stands at 933.
Traders are waiting for evidence that the latest fall in oil prices is once again dissuading explorers from breaking ground.
Around the time that oil prices fell to less than $30 in February 2016, the US rig count fell for 40 weeks in a row, troughing at 404 in May that year.
But more efficient drilling now may mean that the price level that triggers the mothballing of rigs is lower than it was before.
Speculators seem to think so. Reuters reports that fund managers over the last two weeks have cut their net long oil futures and options positions by a cumulative total of 91m barrels.
Still, for the broader equity market, there is little sign to date that falling oil prices are hurting sentiment. Traders seem less concerned about oil sector debt and banks’ exposure to it.