Speculators Turn More Bullish on Oil Before Labor Day: Energy

Sep 01, 2014 1:22 pm ET

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Sept. 1 (Bloomberg) -- Hedge funds increased bullish positions on crude oil for the first time in more than a month, benefiting from a rally before the Labor Day holiday weekend.

Money managers increased net-long positions in U.S. benchmark West Texas Intermediate oil by 0.6 percent in the seven days ended Aug. 26, boosting bullish wagers from a 16- month low, Commodity Futures Trading Commission data showed. WTI climbed 2.5 percent last week, the first gain since July.

U.S. refineries operated at the highest rate for this time of year since 2005 before the Labor Day weekend, which AAA estimated would see the most drivers in six years. Oil demand in the U.S. is at the strongest seasonal level in six years. The nation’s economy expanded more than previously forecast in the second quarter, increasing expectations that consumption will remain robust.

“We have seen gasoline demand picking up,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Aug. 29. “The U.S. economy numbers are just phenomenal. With refiners running at a high rate, there is strong demand for WTI right now.”

WTI declined 62 cents, or 0.7 percent, to $93.86 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures for October delivery were $95.86 at 12:59 p.m. New York time.

Refinery Rates

Refineries operated at 93.5 percent of their capacity in the week ended Aug. 22, the Energy Information Administration said. They used 16.5 million barrels a day of crude during the week, up 0.8 percent from the previous week.

Crude inventories dropped 2.07 million barrels to 360.5 million, the lowest level since Jan. 31, according to the EIA, the Energy Department’s statistical arm. Supplies decreased 6.9 million in August.

“A stronger case could be made for oil prices,”Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors, said by phone Aug. 28. “Supply-demand fundamentals remain tighter than what people currently see.”

Total oil supplied, a proxy for consumption, was 19.8 million barrels a day in the four weeks ended Aug. 22, the highest level for this time of year since 2008. Gasoline demand averaged 9.04 million over the period.

About 29.7 million people planned to drive 50 miles or more from home during the five days ending today, the most since 2008, AAA forecast on Aug. 21.

Pump Prices

Regular gasoline at the pump, averaged nationwide, gained 0.2 cent to $3.436 a gallon on Aug. 28, according to Heathrow, Florida-based AAA, the largest U.S. motoring group. Prices are the lowest for this time of year since 2010.

U.S. gross domestic product grew at a 4.2 percent annualized rate last quarter, up from an initial estimate of 4 percent, the Commerce Department said on Aug. 28. The U.S. will account for about 21 percent of global oil demand this year, almost double that of China, the second-largest consumer, forecasts from the International Energy Agency in Paris show.

“Good economic numbers point to higher demand,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said by phone Aug. 29. “Refineries are still running at a very high level.”

Plants typically slow operations during scheduled maintenance that peaks in September and October, when units move from maximizing gasoline output to producing winter fuels.

WTI Positions

Net-longs for WTI climbed by 1,164 contracts to 189,753 futures and options combined, according to the CFTC. Long positions fell 3,231 to 255,015, and shorts declined 4,395 to 65,262.

In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 60 percent to 12,545 contracts. The fuel rose 2.71 cents to $2.8442 a gallon in the report week.

Net-long wagers on U.S. natural gas slid 1 percent to 148,157. 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 gained 0.9 percent to $3.911 per million British thermal units during the report week.

Bullish bets on gasoline dropped 32 percent to 19,444 futures and options combined. Futures advanced 2.5 percent to $2.7631 a gallon on Nymex in the reporting period, before continuing 1.96 cents higher to $2.7827, the highest level since July 31.

“The oil market is stabilizing,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone Aug. 29. “The improving economic picture here is bolstering the idea that we’ll see better fuel demand.”

--With assistance from Naomi Christie in London.