Hedge Funds Cut Gasoline Wagers by Most in Three Months: Energy

May 12, 2014 4:00 pm ET

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May 12 (Bloomberg) -- The expansion in stockpiles of U.S. gasoline as refineries returned from maintenance and imports accelerated spurred speculators to cut wagers on rising prices by the most in more than three months.

Money managers reduced net-long positions by 14 percent from the highest level since February 2013 in the week ended May 6, U.S. Commodity Futures Trading Commission data show. Long positions fell 11 percent, the first drop in four weeks, and short positions rose 6.1 percent.

Futures slid 5.8 percent in the period, accompanying a retreat in pump prices. Stockpiles rose the most since Jan. 17 in the week to May 2, as output advanced 4.3 percent, the Energy Information Administration said. Nineteen tanker charters to New York from Europe were completed or expected to be booked in the next two weeks, two more than a week earlier, a Bloomberg survey of shipbrokers showed.

“U.S. refineries are coming out of maintenance like a lion and they will be ramping up production,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by phone on May 8. “We should be able to meet demand with no problem and we should see prices fall.”

Gasoline dropped 17.76 cents to $2.8858 a gallon, the lowest in almost five weeks, on the New York Mercantile Exchange in the period ended May 6. Regular gasoline at the pump, averaged nationwide, fell by 0.2 cent to $3.652 a gallon yesterday, the 14th consecutive decline, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Gasoline Imports

U.S. imports of gasoline in the week ended May 2 were 30 percent higher than on April 18, when they were at the lowest seasonal level in 19 years, according to EIA data.

Shipments from abroad usually rise as summer approaches. U.S. refiners are coming out of seasonal maintenance and increasing rates to supply the market with summer-grade fuel.

“We will have more than enough supply,” Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London, said by phone on May 9.

Refineries are able to process 17.93 million barrels a day, the greatest capacity in EIA data going back to 1981. Plant utilization at 90.2 percent in the week ended May 2 is seasonally the highest in eight years.

“The market has gone into a downtrend and there is pressure to liquidate,” Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York, said by phone on May 9. “We are rebuilding inventories and the expectation among many traders is this rebuild will continue.”

Refining Profit

With inventories of crude at a record in the week ended April 25, refiners have incentive to produce more gasoline. The crack spread, or profit margin, has risen 17 percent this year to $21.82 a barrel on Nymex.

“We have enough crude oil in the tanks to manufacture all the products we need and we have the economic incentive for producers,” Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania, said by phone May 8.

Stockpiles of gasoline in the week ended May 2 jumped 1.61 million barrels to 213.2 million, EIA data show.

Hedge funds and other money managers reduced net-long positions in gasoline by 11,998 futures and options to 70,893 in the week ended May 6, the CFTC reported. Long positions fell by 10,889 to 90,089. Shorts climbed for a third straight week by 1,109 to 19,196.

June gasoline futures advanced 1.86, or 0.6 percent, to settle at $2.9146. today.

WTI Positions

Money managers reduced net-long positions in West Texas Intermediate, the U.S. benchmark grade, by 9.4 percent to 299,543 in the reporting week, the third straight drop. The futures slid 1.8 percent to $99.50 a barrel in the period. Prices gained 60 cents to $100.59 today.

Hedge funds and other money managers reduce net bullish bets on Brent futures by most since late June, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumber short positions by 167,690 contracts, a reduction of 36,798 lots, or 18 percent.

Money managers’ bullish wagers on U.S. ultra-low-sulfur diesel fell 32 percent to 23,923. The fuel decreased by 8.24 cents to $2.8877 a gallon in the report week. Prices increased 0.4 percent to $2.9185 today.

Net-long wagers on U.S. natural gas declined 2.3 percent to 386,338. 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.

Nymex natural gas fell 0.7 percent to $4.799 per million British thermal units during the report week. Prices sank 2.1 percent to $4.434 today.

“It’s May, we’re coming out of turnaround, and we’re still a month and a half away from any significant pop in discretionary demand,” Schork said.

--With assistance from Grant Smith in London.