OIL INVESTMENT CUTTING
BLOOMBERG, WSJ - Investors cut their bullish bets on the oil price to the lowest level since OPEC reached a deal to cut output last year, amid continued doubts about the effectiveness of that agreement.
Hedge funds and other big money managers slashed their net long position, a bet on rising prices, in benchmark Brent oil by 10% in the week until May 2. Funds also cut their net long position in West Texas Intermediate, the U.S. price gauge, according to the U.S. Commodity Futures Trading Commission.
The Organization of the Petroleum Exporting Countries and other heavyweight producers meet later this month to decide whether to extend their deal to cut around 2% from global production.
Crude prices rose after the agreement was forged late last year but fell to a five-month low last week as the global glut, which the cuts were aimed at tackling, shows few signs of abating.
"With scant evidence that OPEC production cuts are actually tightening oil markets as expected, the capitulation of [bullish bets] has seemingly dominated price action," David Martin, analyst at J.P. Morgan , said in a note.
On Monday, Brent was trading down 0.1% at $49.06 a barrel, while WTI was changing hands down 0.04% at $46.20 a barrel.
Investors raised their bullish bets to a record high following OPEC's deal. The past few weeks, however, saw funds cutting their long positions and raising their shorts, or bets that prices will fall.
In the latest week, managed-money accounts cut the number of long positions in Brent to the equivalent of 450 million barrels of crude, the lowest since Nov. 29, according to the Commitment of Traders report from ICE. They raised the number of short positions to 128 million barrels.
This mirrored developments in the WTI, where money managers shrunk their net long position on crude by more than 20%, CFTC data showed Friday.
Most analysts expect OPEC and suppliers outside the group, including Russia, to agree to extend their agreement for another six months when they meet in Vienna on May 25. If they fail to achieve consensus, prices could drop below $40, a level not seen for over a year, some analysts say.
Even if OPEC comes through, the oil price faces further obstacles.
In the U.S., rigs drilling for oil continue to increase, pointing to the resilience of the shale industry. On Friday, oil-field services company Baker Hughes Inc. reported the rig count rose by 6—its 16th-straight week of increases.
The count has increased by 7.3 rigs a week on average over the past year, making this the strongest recovery of the last 30 years, Martijn Rats, analyst at Morgan Stanley , wrote in a report Monday.
Rising production in conflict-stricken Libya, which is exempt from the OPEC cuts, also added to the bearish sentiment in the market. J.P. Morgan expects the country to raise its production to 750,000 barrels a day by early next year, from 660,000 barrels a day this year.
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