Oil investors turned bearish at the fastest pace in more than a year as they lost confidence that OPEC will reach a deal with other producers to limit supply at a gathering this week in Algiers.
Money managers increased bets on falling prices by half as the Organization of Petroleum Exporting Countries kept pumping at a record rate before the meeting. Prices rose as high as $47.62 a barrel this month as OPEC officials conducted meetings from Vienna to Paris to Moscow in attempts to reach consensus. Oil tumbled on Sept. 23 after Saudi Arabia was said to dismiss prospects for an output agreement.
“The rhetoric around the meeting is ringing hollow,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. “What they say and do are completely different since they continue to increase production.”
Money managers increased their short position in West Texas Intermediate crude by 50,558 futures and options during the week ended Sept. 20, according to the Commodity Futures Trading Commission. Bets on rising prices dropped for a fourth week, the longest stretch of declines in 14 months.
WTI futures declined 3.3 percent to $43.44 a barrel in the report week. Crude climbed 3.3 percent to close at $45.93 on Monday.
More than 800,000 barrels a day of additional crude is pouring into the global market this month as Russian output climbs while Libya and Nigeria restore disrupted supplies, according to their ministry officials. The global oil-market surplus, once projected to wind down this year, will drag into late 2017, the International Energy Agency said on Sept. 13.
“They need to do something soon,” said Michael Lynch, president of the Strategic Energy & Economic Research in Winchester, Massachusetts. “An additional 800,000 barrels of crude is a big addition.”
Saudi Arabia expects the Algiers meeting to be a chance to consult rather than reach a decision on output levels, an OPEC delegate familiar with the nation’s oil policies said Sept. 23. Prices climbed to a two-week high earlier that day after Saudi officials were said to have made a proposal to their Iranian counterparts to lower the kingdom’s production in exchange for Tehran agreeing to freeze its own, currently at 3.6 million barrels a day.
Money managers’ short position in WTI climbed to 151,637 futures and options. Longs fell 1.9 percent to the lowest level since July. The resulting net-long position decreased 28 percent.
In other markets, net-bullish bets on gasoline rose 7.5 percent to 21,835 contracts, the most since May as futures declined 0.9 percent in the report week. Wagers on ultra low sulfur diesel went from net length to net short, as bets on falling prices outnumbered those for gains for the first time since April. Futures decreased 1.3 percent.
In the Brent market, money managers cut bullish bets by 47,071 contracts during the week, according to data from ICE Futures Europe. Speculative bets that prices will rise outnumbered short positions by 312,102 lots, the London-based exchange said in its weekly report.
OPEC’s last attempt to reach a deal with Russia, the largest non-OPEC producer, collapsed in Doha on April 17 when Saudi Arabia insisted at the last minute that Iran also had to freeze production. Iran refused as it was just starting to revive exports following the end of international sanctions.
“It looks like the Saudis are laying the groundwork for blaming the Iranians for the lack of a deal,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $5.2 billion. “They will be able to say it’s the Persians who are responsible, and then they’ll present something when it suits them.”
–With assistance from Javier Blas