Hedge Fund Crude Wagers Climb to Highest Since September: Energy

Dec 31, 2013 3:29 pm ET

(Energy column news alert: SALT NRGI <GO>.)

Dec. 31 (Bloomberg) -- Hedge funds increased bullish bets on crude oil to the highest level in three months as stockpiles dropped and the U.S. economy expanded more than forecast.

Money managers raised net-long positions, or wagers on rising prices for West Texas Intermediate crude, by 4.4 percent in the week ended Dec. 24, U.S. Commodity Futures Trading Commission data show. It was the fourth consecutive increase, the longest streak since July.

WTI topped $100 a barrel for the first time in two months on Dec. 27, propelled by falling inventories in the U.S., the world’s biggest oil-consuming country. The Federal Reserve cited prospects for improved growth for a reduction in its bond-buying program, and a government report showing that the domestic economy accelerated in the third quarter at a faster rate than previously estimated bolstered expectations for strengthening fuel demand.

“There’s a strong demand environment here and that’s attracted the interest of the hedge funds,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’ve got a bullish surge going into the end of the year.”

WTI advanced $2, or 2.1 percent, to $99.22 a barrel on the New York Mercantile Exchange in the report week. Prices fell 87 cents, or 0.9 percent, to settle at $98.42. today. Futures rose 7.2 percent this year, capping the fourth increase in five years. The CFTC data, normally released on Fridays, was delayed because of the Christmas holiday.

Federal Reserve

“There’s been increasing interest from money managers and that flow has been supportive for the market,” said Tim Evans, an energy analyst at Citi Futures in New York.

Futures began the reporting period by rising 0.6 percent to $97.80 on Dec. 18 after the Fed announced it will begin curbing the pace of stimulus and boosted its assessment of the job market. The central bank will cut monthly bond purchases to $75 billion from $85 billion. The central bank said the unemployment rate will fall as low as 6.3 percent by the end of 2014, down from a September forecast of 6.4 percent to 6.8 percent.

WTI also gained after the Energy Information Administration said U.S. crude inventories fell 2.94 million barrels in the week ended Dec. 13, the third straight decline. Supplies at Cushing, Oklahoma, the delivery point for New York futures, slipped 600,000 barrels, according to the EIA, the Energy Department’s statistical arm. Fuel demand surged 13 percent to 21 million barrels a day, the highest since April 2008.

Crude gained 97 cents to $98.77 on Dec. 19 as the market rallied a second day on the Fed announcement and falling stockpiles.

Economic Outlook

WTI climbed 28 cents to a two-month high of $99.32 on Dec. 20 after a Commerce Department report showed that the U.S. economy expanded in the third quarter at a faster rate than previously estimated. Gross domestic product increased at a 4.1 percent annualized rate, up from a previous estimate of 3.6 percent. A 3.6 percent gain in GDP was projected, based on the median forecast of 72 economists surveyed by Bloomberg.

Futures retreated on Dec. 23 amid speculation that prices rose more than justified the prior week. Crude slipped even as the Standard & Poor’s 500 Index increased to a record. Global equities advanced after Christine Lagarde, managing director for the International Monetary Fund, said Dec. 22 that the group is raising its outlook for the U.S. economy.

Durable Goods

Crude advanced 0.3 percent to $99.22 a barrel on Dec. 24, the fourth gain in five days, as U.S. orders for durable goods climbed more than forecast. Bookings for goods meant to last at least three years rose 3.5 percent in November, the Commerce Department reported today. Orders grew after a 0.7 percent drop the prior month, the department said. The median estimate of 75 economists surveyed by Bloomberg called for a 2 percent advance.

The Nymex was closed for Christmas on Dec. 25. Prices gained 0.3 percent on Dec. 26 after a Labor Department report showed that fewer Americans than projected filed for unemployment benefits.

WTI advanced 0.8 percent to $100.32 on Dec. 27, closing above $100 for the first time since Oct. 18, after the EIA said supplies decreased to 367.6 million barrels in the week ended Dec. 20. Inventories of gasoline and distillate fuel, including diesel and heating oil, also slipped amid rising demand. Refineries operated at the highest rate in five months.

Net-long positions in WTI crude, the U.S. benchmark, increased by 11,055 futures and options combined to 263,965, the highest level since the week ended Sept. 24. Long positions expanded by 3,878 futures and options combined, while shorts decreased by 7,177.

Gasoline Bets

In gasoline, bullish bets held by money managers, including hedge funds, commodity pools and commodity-trading advisers, surged by 5,551 futures and options combined, or 13 percent, to 47,536, the highest level since September, the CFTC data showed.

Futures increased 16.7 cents, or 6.3 percent, in the reporting period to $2.8142 a gallon on the Nymex. The fuel dropped 0.19 cent to settle at $2.7858 today.

Regular gasoline at the pump, averaged nationwide, rose 0.6 cent to $3.318 a gallon yesterday, the highest level since Oct. 23, according to data from Heathrow, Florida-based AAA, the largest U.S. motoring group.

Money managers’ bullish wagers on U.S. ultra low sulfur diesel gained 238 futures and options combined, or 1.2 percent, to 19,808.

‘Long Accumulation’

The fuel increased 11.54 cents, or 3.9 percent, to $3.0783 a gallon in the reporting week ending Dec. 24. The contract closed unchanged at $3.0772 today.

“At some point, we’re going to see greater long accumulation on the product side, and less on crude,” Evans said. “We should see increasing demand for fuel here and a greater demand for exports from U.S. refiners in the months ahead.”

For Brent, the benchmark used to price more than of the world’s crude, hedge funds and other money managers raised net bullish bets by the most in almost three years, according to the ICE Futures Europe exchange.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 128,941 lots in the week ended Dec. 24, the London-based exchange said yesterday in its weekly Commitments of Traders report. The increase of 37,570 contracts in the net-long position is the biggest since the data began in January 2011.

Natural Gas

Net-long wagers on four U.S. natural gas contracts rose for a fifth week, adding 40,447 futures equivalents, or 11 percent, to 401,875, the highest level since June 4.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

Natural gas futures gained 12.9 cents, or 3 percent, to $4.416 per million British thermal units on the Nymex during the week ended Dec. 24. Futures today slid 4.4 percent, the biggest decrease since May 2, to settle at $4.23.

“Speculator interest in crude will probably increase for a bit longer,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Inventories should start to rise again early next year and when that happens, bullish interest will recede. The bears will soon re-emerge.”

--With assistance from Grant Smith in London. Editors: Charlotte Porter, Margot Habiby