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Hedge funds have turned more negative on oil amid worry about fundamentals, holding a record net short position on gasoline while cutting bullish wagers on crude to five-month lows, industry data on Friday showed.
Oil markets have been gripped by fear in recent weeks that the oversupply in crude could get out of hand again like two years ago. Rising stockpiles of gasoline despite the peak summer driving season in the United States have added to the worries.
Data from the US Commodity Futures Trading Commission (CFTC) that extends back to 2006 showed that money managers, including hedge funds and other big speculators, were holding a record net short, or bearish, position of 5,078 contracts on NYMEX-traded gasoline.
As for crude oil, money managers cut their net long position on NYMEX's West Texas Intermediate (WTI) crude by 44,318 contracts to 111,333 in the week to July 26. That was the lowest net long position held in US crude by money managers since the week ended March 1.
In the previous week, managed money net longs in WTI fell by 24,912 contracts. Over an eight-week span, bullish wagers on WTI have fallen by nearly 144,200 contracts. That is equivalent to more than 144 million barrels in actual supply, given NYMEX's position size of 1,000 barrels per contract.
"The robust flow of selling is confidently bearish for now," Tim Evans, energy futures specialist at Citi Futures in New York said, commenting on the sell-off in both crude and gasoline.
Worries about an oil glut pushed WTI prices down 5 per cent for the week ended July 26, with the market settling below $43 a barrel. Since then, the US benchmark has fallen further. On Friday, WTI's front-month contract settled July trading at below $42 a barrel, and down 14 per cent for the month - the biggest decline in a year. Crude prices are still up more than 55 per cent from 12-year lows of $26 to $27 in the first quarter. But the recovery that began in earnest in March faded after prices above $45 enticed oil drillers to return to the well pad.
Drillers added 44 rigs in July, the most in a month since April 2014. Oil majors ExxonMobil Corp, BP Plc, Royal Dutch Shell Plc and Chevron Corp each had a poor second quarter because of weak refining margins for crude. Analysts at Goldman Sachs said this week they did not expect a big recovery in oil prices any time soon, projecting a trading range of $45 to $50 through mid-2017.
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