Hedge funds have gone all-in on lower oil prices, counting on seasonal weakness to play out again this year.
Money managers increased wagers on declining crude prices to a record as futures dropped to the lowest in more than three months. U.S. crude inventories climbed for a second week as imports arrived at the fastest pace since 2012. The supply gain comes on the cusp of seasonal refinery maintenance that will curb crude demand. Futures have declined in each of the past five Septembers.
“We’re are entering a period of seasonal maintenance, which should put some downward pressure on prices,” said Scott Roberts, co-head of high yield investments and manager of $2.7 billion at Invesco Advisers Inc. in Atlanta.
Hedge funds increased their short position in West Texas Intermediate crude to 218,623 futures and options combined during the week ended Aug. 2, the highest in data going back to 2006, according to the Commodity Futures Trading Commission.
WTI closed 22 percent below its June peak on Aug. 1, meeting the common definition of a bear market. It dropped 7.9 percent to $39.51 a barrel in the report week. Prices were up 1.9 percent at $42.61 as of 8:36 a.m. on Monday.
U.S. crude supplies rose to 522.5 million barrels as of July 29, the highest seasonal level in decades, Energy Information Administration data show. Imports climbed to 8.74 million barrels a day, the most since October 2012.
Refineries operated at 93.3 percent of capacity in the week ended July 29, the highest since November. Refiners typically bolster their operations in June and July to meet peak gasoline demand before ratcheting back in August. Over the past five years, refiners’ thirst for oil has dropped an average of 1.2 million barrels a day from July to October.
“Refinery margins are weak, global demand growth is decelerating and there’s upcoming seasonal weakness for both crude demand and product demand,” Mike Wittner, head of oil market research at Societe Generale SA in New York, said on Bloomberg Television Aug. 4. “To me it has a taste of the classic autumn downturn.”
Technical factors are also weighing on crude prices. WTI settled below the 50, 100 and 200-day moving averages on Aug. 1 for the first time since February.
The market has further to fall before hitting key support, according to Paul Ciana, a technical analyst at Bank of America Merrill Lynch in New York. “We need to form a bottom in the mid-to-upper $30s before we move back towards $52.”
Money managers’ short position in WTI rose 38,489 futures and options and have almost doubled in the past three weeks, CFTC data show. Longs, or bets on rising prices, increased 1.6 percent, while net longs dropped 28 percent to the lowest since January.
In the Brent market, money managers trimmed bullish bets by 28,148 contracts in the week, according to data from ICE Futures Europe. Bets that prices will rise outnumbered short positions by 260,388 lots, the least since January, the London-based exchange said.
In other markets, net-bearish bets on gasoline fell 20 percent to 4,081 contracts. Gasoline futures fell 2.5 percent in the report week. Net-long wagers on U.S. ultra low sulfur diesel dropped 44 percent to 7,163 contracts. Futures slipped 5.1 percent.
Not everyone is on the bearish bandwagon.
The influx of bearish bets from money managers may leave the market vulnerable to a rebound. The past three peaks in short bets have been followed by price gains ranging from 29 percent to 95 percent.
The oil market is poised for a “violent reversal” upward, oil trader Andy Hall wrote to investors in his Stamford, Connecticut, hedge fund, Astenbeck Capital Management LLC. “Funds have made a significant amount of money getting short oil in the last few weeks and people will want to take some profits off the table as we approach levels which will only accelerate U.S. production declines.”
Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd
The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.
The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.
The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.
The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.
Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.
The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.
Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins
Oil Prices Recover from 4 Percent Decline as Joe Biden Wins
Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.
This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.
Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.
On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.
“Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.
“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.
“There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.
“Either you’re crimping energy demand or consumption behavior.”
Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020
Revenue of OPEC Members to Drop to 18 Year Low in 2020
The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.
EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.
“If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.
The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.
It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.
It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.
“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”
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