Hedge fund short bets against oil hit year high
Net long positions also shrink dramatically as crude’s price tumbles from October peak
Hedge funds have more than tripled their bets against the oil price since the beginning of October, amassing the largest short position against crude in more than a year as prices have tumbled.
The data, compiled from regulators and exchange operators, shows investors have been adding big bets against crude as it slid from $86 a barrel in early October to below $60 a barrel last week, likely extending oil’s fall as traders sold barrels.
Bets against the main oil benchmarks in London and New York are now at the highest level in at least 16 months, while net long positions — the difference between bets on rising and falling prices — have also shrunk dramatically.
That could add to price volatility ahead of meetings between Opec and allied producers including Russia next week, said traders, with Saudi Arabia said to be keen to agree an output cut to help prop up the market despite opposition from the US, its chief western ally. Brent prices stabilised above $60 a barrel on Monday, rebounding 3 per cent after losing 12 per cent last week.
“Until the next Opec conference the question is how the market will behave,” said Tamas Varga at oil brokerage PVM in London. “We should never underestimate the power of speculative forces.”
The oil market has been roiled in the past two months by signs that supplies have risen much faster than demand, with US output soaring while Saudi Arabia and Russia have hiked production, moving to forestall any supply shortfall as Washington reimposed sanctions on Iran’s energy exports.
But with the US announcing more waivers than anticipated for Iran’s customers, oil prices have tumbled, with fears also mounting of a slowdown in the broader economy.
Hedge fund short positions in Brent crude oil and US benchmark West Texas Intermediate now stand at the equivalent of more than 200m barrels, up from around 60m in early October.
Saudi Arabia’s oil production reached a record 11m-plus barrels a day — more than 1m b/d higher than its output this spring — at the end of November, newswires reported on Monday, with Opec’s largest producer responding to stronger demand from customers ahead of the US sanctions on Iran.
Analysts have said the fundamentals of the oil market suggest Saudi Arabia now needs to lower output otherwise prices will fall further.
“We believe doing nothing at the Opec meeting is simply not an option, as it could easily result in prices dropping to the $40s,” said Amrita Sen at Energy Aspects.
Saudi Arabia’s decision-making has been complicated, however, by Donald Trump’s vocal support for lower oil prices.
The US president has maintained backing for Saudi Arabia’s Mohammed bin Salman despite questions about the crown prince’s knowledge of the killing of dissident journalist Jamal Khashoggi.
The leaders of the US, Saudi Arabia and Russia will be at the G20 meeting in Argentina this week before the Opec talks. The energy ministers of Saudi Arabia and Russia will also attend the G20, suggesting talks about the oil price are likely.