Hedge funds lose faith in oil before Harvey hits demand centre. A refinery stands in the background as a pump jack operates in an oil field near Corpus Christi, Texas. Hedge funds lost faith in oil just before the worst storm to hit the US since 2004 struck the heart of energy production in Texas.
Hedge funds lost faith in oil just before the worst storm to hit the US since 2004 struck the heart of energy production in Texas. Short-sellers boosted bets on declining West Texas Intermediate prices by the most since June in the week ended August 22 as futures chopped around $47 a barrel without a clear direction. Harvey smashed ashore on Friday as a Category 4 hurricane, flooding a region whose refineries process 5mn barrels of oil a day. Anticipation that the storm would pare crude demand pushed prices down a day after declining US stockpiles had triggered a rebound. Futures ended the week 1.3% lower, without enough conviction from bears or bulls to break out of a tight range.
Prices in New York were on track for the worst August since 2011, dropping below two key levels this month – the 100-day and 200-day moving averages. Apart from an even more tedious February, futures have traded in the tightest monthly range in more than a decade. Hedge funds decreased their WTI net-long position – the difference between bets on a price increase and wagers on a drop – by 21,467 to 252,974 futures and options in the week ended August 22, data from the US Commodity Futures Trading Commission show. That was the biggest drop since late June. Longs dropped 3.8%, while shorts climbed by 9.3%.
“We’re stuck in a range. Once we break out of this range, then I think you’ll start to see one side pick up a little bit more,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors, said by telephone. “If you get closer to $49, you may see some longs being added for that potential break-out and if you start coming off pretty hard, you may see some shorts start getting back into the market.”
In fuel markets, the net-long position on the benchmark US gasoline contract declined 7.5%, while the net-long position on diesel plunged 38%.
“My hope has been that as investors were given further evidence of inventory draw-downs, both in the OECD and in the US, that you would have seen that expressed in a higher spot and higher strip price for oil,” Eric Nuttall, senior portfolio manager with SPR & Co, the interim holding company following Sprott Asset Management’s recent management-led buyout. “That has not occurred yet.’