The silhouette of an electric oil pump jack is seen at dusk in the oil fields surrounding Midland, Texas, U.S. (Photographer: Luke Sharrett/Bloomberg)

Oil’s Plunge Has Investors Cutting Their Bullish Bets

(Bloomberg) -- Enthusiasm for oil is at its worst in a year as global financial woes and rising U.S. stockpiles dim the demand outlook.

Hedge funds cut bets on rising West Texas Intermediate crude prices for a sixth straight week, to the lowest since October 2017. Total wagers, long or short, were near the lowest in two years. Before a slight rebound on Friday, the U.S. benchmark sank 10 percent in little more than two weeks.

“There are growing concerns in the market about demand growth stalling and that you could see new barrels come into the market to replace Iranian crude starting in November,” said Gene McGillian, manager of market research at Tradition Energy. “That’s forced some longs to lock in their profits.”

Oil’s Plunge Has Investors Cutting Their Bullish Bets

Oil slipped to the lowest in almost a month last week as expanding American stockpiles overshadowed tensions between the U.S. and Saudi Arabia over the disappearance of a prominent kingdom critic. Meanwhile, trade tensions between the Trump administration and China and financials woes in emerging economies are clouding the picture for oil consumption.

“It’s amazing how strangely and quickly things have changed. I think the original move up to the mid $70s was completely not called for,” said Phil Streible, senior market strategist at RJO Futures in Chicago. “It was a lot of speculation over sanctions on Iran, Venezuela declining, Libya declining and who will pick up the slack.”

Hedge funds’ WTI net-long position -- the difference between bets on higher prices and wagers on a drop -- fell 14 percent to 242,855 futures and options in the week ended Oct. 16, according to the U.S. Commodity Futures Trading Commission. Longs fell 7.1 percent, while shorts jumped 38 percent to the highest since November 2017.

Oil’s Plunge Has Investors Cutting Their Bullish Bets

Bullishness may return, though, when the impact of sanctions on Iran kick in next month.

“This seems short term,” said John Kilduff, partner at Again Capital. “You have to be concerned about the lost Iranian supply coming up. We’re going to lose about 1 million, 1 million and a half that’ll finally register. The selling now seems to be a temporary blip.”

OTHER POSITIONS:

  • The net-long position in Brent fell 14 percent to 409,118 contracts for the week ended Oct. 16, ICE Futures Europe data show.
  • Money managers cut their net-long positions on benchmark U.S. gasoline by 15 percent and decreased their bullish bets on diesel by 9.5 percent, according to the CFTC. 

©2018 Bloomberg L.P.