Oil Shorts Soar as Market Shakes Off Saudi Arabian Disruption

(Bloomberg) -- Oil investors piled into short positions as oil markets shook off the disruption from attacks on Saudi Arabian oil facilities.

Bets that West Texas Intermediate crude prices would decline surged 33%, just before prices briefly dipped below pre-attack levels. Money managers are still net long, according to data released Sept. 27 by the U.S. Commodity Futures Trading Commission, but wagers on a rally shrank to below where they were before the Sept. 14 strikes that halted half of Saudi oil output.

“The initial up-swell in long positions in part was a function of worries that the damage to Saudi facilities was going to take long to fix,” said Stewart Glickman, an energy analyst at CFRA Research Inc. “Now it seems like, by all indications, the Saudis, the majority of their processing capacity, is back.”

With Saudi production mostly back, the market’s focus shifts again to a trade war between the U.S. and China that threatens to slow the world economy and reduce energy consumption. In the latest development, U.S. government officials are considering caps on American money flows into China, a measure with major implications for billions of dollars in investments, according to people familiar with the deliberations.

“The global economy is better off if these trade battles can be solved,” Glickman said. But the skirmish is “not showing signs of ebbing.”

Hedge funds’ WTI net position -- the difference between wagers on an increase and those on a decline -- declined to 198,109 options and futures, compared with 201,168 before the attack, the CFTC data showed. Long positions fell 0.8%, while short-selling surged 33%.

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