OPTIMISTIC OIL PRICES
BLOOMBERG - Oil's bumpy ride to higher ground this year is winding down with a good dose of optimism that 2018 will be even better.
Hedge funds boosted their bets on rising Brent crude to a record, with bullish wagers on West Texas Intermediate oil near a nine-month high. The optimism is largely fueled by confidence that the extension of OPEC output curbs will tighten up markets next year.
"In general, money managers are ending the year on a high note, certainly a little more optimistic than where they started and where we were at the middle of the year," Ashley Petersen, lead oil analyst at Stratas Advisors in New York, said in a telephone interview. "The U.S. remains kind of a big risk next year in terms of increasing supply, but the international picture is still pretty optimistic and pretty bright with OPEC controlling supply and demand strong."
OPEC's Secretary General Mohammad Barkindo said the producer group is close to its goal of rebalancing markets and the International Energy Agency said oil inventories in developed nations have slid to the lowest since July 2015. OPEC upped the implementation of promised cuts in November to 115 percent, the highest rate since the agreement began, according to the IEA.
"Post-OPEC, you can't be short," Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC, said by telephone. "OPEC restored a tremendous amount of credibility."
Brent is up about 40 percent since hitting bottom in late June, while WTI has gained about 35 percent.
The Brent net-long position -- the difference between bets on a price increase and wagers on a drop -- rose 1.8 percent to a record 544,051 contracts, according to data from ICE Futures Europe. Longs increased for a third week, also hitting an all-time high, while shorts slid by 2.2 percent.
Money managers cut their WTI net-long position by 0.4 percent to 390,874 futures and options in the week ended Dec. 12, according to data from the U.S. Commodity Futures Trading Commission on Friday. Longs edged lower by 0.9 percent and shorts fell by 5.1 percent.
During the report week, money managers were also slightly more bullish on Brent than WTI due to the outage on the Ineos Group Ltd.-operated Forties Pipeline System in the North Sea that sent prices surging to two-year highs, according to Rob Haworth, who helps oversee $150 billion in assets at U.S. Bank Wealth Management in Seattle.
The net-short position of swap dealers, an indication of hedging, increased for a ninth week to a fresh record, according to the CFTC data.
In the fuel market, money managers reduced their net-long position on benchmark U.S. gasoline by 9.9 percent. Meanwhile, the net-bullish position on diesel rose by 4.1 percent.
Kuwait's new oil minister, Bakheet Al-Rashidi, said global crude demand will increase at a "healthy" pace next year. JPMorgan Chase & Co. boosted its oil forecasts for 2018, saying prices have remained "broadly stable, reflecting solid fundamentals and tightening balances." Meanwhile, oil options trading shows increasing bets on Brent at $80 a barrel from the middle of next year.
Front-month Brent contracts are trading at a premium to later-dated ones, a market structure known as backwardation that signals strong demand and tighter supply. Brent futures for December 2018 were $2.61 higher than the December 2019 contracts on Friday. Most of the WTI curve is also in backwardation.
Money managers are "certainly very positive," Haworth said. "They continue to really believe in demand growth and OPEC's conviction to take control of this market and drive prices higher."
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AN - China National Offshore Oil Corp. (CNOOC) is willing to invest $3 billion in its existing oil and gas operation in Nigeria, the Nigerian National Petroleum Corporation (NNPC) said on Sunday following a meeting with the Chinese in Abuja.
REUTERS - Production at Libya’s giant Sharara oil field was expected to fall by at least 160,000 barrels per day (bpd) on Saturday after two staff were abducted in an attack by an unknown group, the National Oil Corporation (NOC) said.
IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.