By Moming Zhou
(Bloomberg) — Speculators who bet against crude missed out on the biggest rally in 31 months, as a record decline in U.S. oil rigs spurred speculation that production will slow.
Money managers cut net-long positions in West Texas Intermediate crude for a second week in the seven days ended Jan. 27, boosting short wagers to the highest level since 2010, U.S. Commodity Futures Trading Commission data show.
Three days later, Baker Hughes Inc. said drillers pulled 94 rigs from U.S. fields in a single week, the most on record, driving crude prices to their biggest gain since June 2012. Oil tumbled 51 percent in the past year as U.S. output reached a three-decade high and OPEC refused to cut production to stem a global glut. Oil companies have announced more than $20 billion in spending cuts so far this reporting season.
“The momentum is now starting to look bullish,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 30. “The drop in the rig count and spending is going to substantially reduce oil production later this year into next year.”
Futures fell $1.42 to $46.82 a barrel in electronic trading on the New York Mercantile Exchange at 12:34 p.m. Singapore time. WTI fell 16 cents to $46.23 a barrel on in the period covered by the CFTC report, dropping to $44.45 on Jan. 28, the lowest settlement since March 2009.
Refinery Strike
The United Steelworkers union, which represents employees at more than 200 U.S. oil refineries, terminals, pipelines and chemical plants, began a strike at nine sites on Sunday, the biggest walkout called since 1980. A full walkout of USW workers would threaten to disrupt as much as 64 percent of U.S. fuel production.
The U.S. oil rig count dropped to a three-year low of 1,223, Baker Hughes said Jan. 30. Drillers idled 352 oil rigs in eight weeks.
Royal Dutch Shell Plc, Occidental Petroleum Corp. and ConocoPhillips alone said they would reduce spending by almost $10 billion this year.
Chevron Corp. cut its drilling budget by the most in 12 years and said it may delay some shale projects. The company is targeting $35 billion in capital projects this year, from $40.3 billion in 2014.
“Oil production growth should be flat or declining by May or June unless there’s some substantial recovery in oil prices,” James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas, said by phone Jan. 30.
Production Record
The decline in the rig count has yet to be reflected in U.S. production. Output increased to 9.21 million barrels a day in the week ended Jan. 23, the most in Energy Information Administration data since 1983.
Crude stockpiles rose to 406.7 million barrels in the week ended Jan. 23, the most in weekly data beginning 1982, according to the EIA.
“We are going to continue to build until we get to a point where you run out of storage,” Michael Hiley, head of over-the- counter energy trading at LPS Partners Inc. in New York, said by phone Jan. 30.
Production by the 12-nation Organization of Petroleum Exporting Countries climbed 483,000 barrels a day to 30.905 million a day in January, according to a Bloomberg survey of oil companies, producers and analysts.
The slump in oil prices may deter investment in all types of energy needed to meet future demand, the head of the International Energy Agency said Jan. 21.
“If these low oil prices delay investment, or investment decisions, the world will be in a problematic situation in the next decade,” Maria Van Der Hoeven, executive director of the IEA, said in an interview in Abu Dhabi.
CFTC Data
The net-long speculative position in WTI fell by 379 contracts, or 0.2 percent, to 216,325 futures and options in the week ended Jan. 27, according to the CFTC. Short bets jumped 11 percent to 104,763 and longs gained 3.3 percent to 321,088.
In other markets, bearish wagers on U.S. ultra low sulfur diesel climbed 1.2 percent to 30,316 contracts as the fuel gained 2.2 percent to $1.6628 a gallon in the report week.
Net short wagers on U.S. natural gas more than tripled to 38,329. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas advanced 5.3 percent to $2.981 per million British thermal units in the week covered by the report.
Bullish bets on gasoline jumped 32 percent to 52,178 as futures increased 2.8 percent to $1.3501 a gallon on Nymex.
Regular gasoline at U.S. pumps rose 0.7 cent to average $2.051 a gallon Jan. 29, according to Heathrow, Florida-based AAA, the country’s largest motoring group.
“We are laying the groundwork for much lower production in a year or two,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Jan. 30. “The market is going to have upswings from time to time.” -BLOOMBERG
