Oil Bulls Return Just as Middle East Risk Comes Roaring Back

(Bloomberg) -- Sometimes, timing is everything.

Oil traders increased bets on higher Brent crude prices by the most since December 2016. Now they stand to profit after a drone attack on a massive Saudi Arabian processing plant slashed the Kingdom’s production. Output was originally expected to be restored within days, but now Saudi officials are growing less optimistic that there will be a rapid recovery.

Shaking off a forecast for slower oil-demand growth this year, money managers last week focused on signals from the new Saudi energy minister that he’s committed to the reductions. Investors bowed out of bets on lower prices, increasing net-long positions in Brent crude by 21%, and also piled into bullish wagers on West Texas Intermediate.

A report last week that China may purchase more U.S. agricultural goods was seen to help trade talks, while OPEC and its allies paved the way for potential deeper cuts at its December meeting. Still, Brent sank 2.1% and WTI dropped 3% last week as the departure of U.S. National Security Advisor John Bolton raised the possibility of a thaw in U.S.-Iran relations.

The International Energy Agency said in a report that OPEC and its allies will continue facing challenges in balancing the market as production surges from its competitors. That would include the U.S., where output is set to grow by 1.3 million barrels a day next year at current prices.

Net-length in WTI -- the difference between wagers on an increase and those on a decline -- rebounded by 20% to 201,168 options and futures in the week ended Sept. 10, the U.S. Commodity Futures Trading Commission said. Long-only bets rose 5.7%, the highest in two months, while shorts fell 31%, the biggest weekly retreat this year.

London’s Brent futures jumped almost $12 in the seconds after the open on Monday, the most in dollar terms since their launch in 1988. Brent for November settlement climbed $6.19 to $66.41 a barrel on the ICE Futures Europe Exchange at 9:20 a.m. in New York, while West Texas Intermediate crude for October delivery jumped $5.54 to $60.39 a barrel on the New York Mercantile Exchange.

To contact the reporter on this story: Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Mike Jeffers, Joe Carroll

©2019 Bloomberg L.P.