Speculators shorting crude oil cash out to end `Great Year'
Bloomberg reported that after a great year of betting against oil, some bearish investors sat out the last week of 2015 after prices hit a six-year low.
Hedge funds’ bets on falling prices shrank 8.5 percent in the week ended Dec. 29 to a six-week low, according to Commodity Futures Trading Commission data. That didn’t mark a shift to optimism about oil, as speculators also reduced long positions.
John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said that “It’s definitely short covering after a great year for the shorts. “We’ve come a long way down and plumbed some new lows in December.”
Speculators’ net-long position in West Texas Intermediate crude is hovering near the lowest level in five years. Their gloomy outlook was borne out Monday, as not even escalating tension between Saudi Arabia and Iran was enough to support a rally as WTI closed down 0.8 percent. Futures added 4 cents to USD 36.80 a barrel at 7:48 a.m. London time on Tuesday.
Mideast Tension
Saudi Arabia severed diplomatic ties with Iran over the weekend after Iranian protesters set fire to the Saudi embassy in Tehran following the execution of Saudi cleric Nimr al-Nimr, a critic of the kingdom’s treatment of its Shiite minority. Saudi Arabia and Iran have the world’s second- and fourth-largest proved reserves of oil, according to BP Plc.
Mr Paul Horsnell, head of commodities research for Standard Chartered Bank, said that "Saudi Arabia’s breaking of diplomatic relations with Iran is probably not an immediate game-changer for the oil market. The geopolitical premium in oil prices is likely to be small.”
Other Markets
In other markets, net bearish wagers on U.S. ultra low sulfur diesel decreased 9.8 percent to 35,339 contracts. Diesel futures rose 3.9 percent in the period. Net bullish bets on Nymex gasoline jumped 33 percent to 28,391 contracts as futures rose 8.6 percent.
Even with the short-covering, fundamentals for the market remain bearish, said Andy Lipow, president of Lipow Oil Associates LLC, an energy consulting firm in Houston. There are almost 3 billion barrels of oil and products like gasoline in developed countries’ storage tanks, according to the International Energy Agency. Sanctions against Iran over its nuclear program are set to end, allowing the OPEC member to boost oil exports.
Source : Bloomberg