Hedge funds unwound bearish bets at the fastest pace in 10 months as fear of oil sinking to $20 a barrel faded.
A lot has happened since Goldman Sachs Group Inc made that forecast a month ago. Some US shale drillers have thrown in the towel after a year of maintaining supply in the face of plunging prices, saying they’ll pump less in 2016. Saudi Arabia, Russia and other large producers have frozen output and plan to meet later this month to discuss further measures to support prices.
“We might see the real bottom being behind us,” Ed Morse, head of global commodity research at Citigroup Inc, said in an interview on Friday with Bloomberg TV. “Eventually we’ll see US supply falling.”
Speculators reduced their short positions in West Texas Intermediate crude by 15% in the week ended March 1, according to US Commodity Futures Trading Commission data. Futures gained 7.9% in the report week and have jumped 40% since hitting a 12-year low on February 11.
US crude production fell for a sixth time in the week ended February 26 to 9.08mn bpd, the lowest level since November 2014, according to the Energy Information Administration.
Apache Corp said last month its oil and natural gas output will fall as much as 11% in 2016. Continental Resources Inc projected a 10% cut and Whiting Petroleum Corp a 15% reduction.
Members of the Organisation of Petroleum Exporting Countries intend to meet with other producers between March 20 and April 1, Russian Energy Minister Alexander Novak said on Russian state television March 4. There hasn’t been a final decision on timing and location, according to Novak.
Saudi Arabia, Russia, Qatar and Venezuela agreed on February 16 in Doha that they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.
“Many people believe that we might have seen the worst of it,” said Bart Melek, head of commodity strategy at TD Securities in Toronto. “We are seeing pretty significant declines in US production. There is hope that soon an Opec agreement will come.”
The premium of December WTI puts over calls shrank on Friday to the lowest level since January 25, and an index measuring volatility in the largest oil exchange-traded fund has dropped to the lowest in almost two months.
Speculators’ short positions in WTI fell by 25,639 contracts of futures and options combined to 150,718, the biggest decline since April 21, CFTC data show. Longs, or bets on rising prices, fell by 753. The exodus of bearish bets resulted in a 24,886-contract jump in the net-long position.
In other markets, net bearish wagers on US ultra low sulphur diesel rose by 2,801 contracts. Diesel futures climbed 7.6% in the period. Net bullish bets on Nymex gasoline climbed 5,534 contracts as front-month futures gained 35%.
Prices climbed even as US crude supplies increased by 10.4mn barrels in the week ended February 26 to 518mn, according to the EIA. That’s the highest level since 1930.