Washington - Oil investors are playing it safe as Opec hammers out the details of a deal to trim output.
Money managers reduced bets on falling prices to the lowest since May as oil held above $50 a barrel, prolonging a rally that began when the Organisation for Petroleum Exporting Countries announced a deal to cut production to between 32.5 million and 33 million barrels a day. The group plans to finalise the agreement at a meeting in Vienna on November 30.
“The shorts are not laughing off this Opec deal anymore,” Phil Flynn, a market analyst at Price Futures Group in Chicago, said in a phone interview. “There’s a growing realisation that there’s going to be a deal to lock in production. Things will be relatively calm until we get the agreements.”
Saudi Arabia’s Energy Minister Khalid Al-Falih said on October 19 that many nations are willing to join Opec in cutting production. So far, Russia has said it’s considering taking steps to stabilise the market. Alexander Novak, the country’s energy minister, said Sunday that “many scenarios” are being discussed. Venezuelan President Nicolas Maduro, on a tour of oil-producing countries to boost support for the deal, said on October 21 he’s in favour of inviting the US to the next Opec meeting and creating an “alliance” of Opec and non-Opec nations.
“This week the market is in a pause after the run-up to $50,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There’s still a lot of question about what Opec is actually going to do next month. Absent that, people are waiting for some more direction than we have now.”
In addition to slashing short bets in West Texas Intermediate crude by 21 percent during the week ended October 18, hedge funds also reduced their long positions by 3.2 percent from a two-year high, according to the Commodity Futures Trading Commission. Net longs increased to the highest in two years.
Oil inventories
WTI slipped 1 percent during the report week to $50.29 a barrel. The US benchmark rose 0.1 percent on Monday to $50.91 as of 9:41 a.m. London time. Prices reached a 15-month high on October 19 after government data showed US crude stockpiles fell to the lowest level since January.
US stockpiles dropped 5.25 million barrels to 468.7 million in the week ended October 14, according to the Energy Information Administration, after reaching 512.1 million in late April.
“$50 will be the floor through the Opec meeting, barring some spike in the dollar,” Price Futures Group’s Flynn said. “With US inventories falling at a rapid pace, the prospect of a cut or freeze has real consequences.”
In other markets, net-bullish bets on gasoline rose 9.4 percent to 40,085 contracts, the highest since March 2015, as futures climbed 1.5 percent in the report week. Ultra low sulphur diesel net-longs fell 7 percent to 8,439. Futures slipped 1.2 percent.
WTI held above $50 a barrel even as Russia’s energy minister said the country may produce a new oil-output record next year. As Opec members head into technical meetings October 28-29, investors will be watching for details on country allocations. Iraq should be exempted from cutting production, Oil Minister Jabbar Al-Luaibi said on Sunday.
“The market just wants to see the proof in the pudding,” said Carl Larry, director of oil and gas at consultant Frost & Sullivan in Houston. “We got to $50. That’s as good as it’s getting, going into the November election and the actual Opec meeting.”
* With assistance from Jessica Summers and Sam Wilkin
BLOOMBERG