Hedge funds pick wrong in oil bet
Outlook for crude prices remains bearish and volatile after a short-lived recovery in the wake of surging supplies and sluggish demand in the US
Hedge funds rushed back into oil too quickly, boosting bullish bets amid a rebound last week, only to then watch surging US crude supplies push prices back to a two-year low.
The net-long positions in West Texas Intermediate futures rose 5.7 per cent in the seven days to October 21, US Commodity Futures Trading Commission data showed. Short bets shrank 20 per cent, the most in three months, while longs dropped 2.8 per cent.
After rising as analysts speculated prices had reached a floor, WTI sank again after stockpiles climbed. It fell to US$80.52 on October 22, the lowest settlement since June 2012, and ended the week down 24 per cent from the year's high. The US benchmark might dip to US$75 by the end of the year, Bank of America Corp said.
The "swiftness of the sell-off" attracted bargain hunters, said John Kilduff, a partner at Again Capital, a New York-based hedge fund. "People came in and tried to pick the bottom, and they picked wrong."
US oil inventories increased 7.11 million barrels in the seven days to October 17 to 377.7 million, the Energy Information Administration said. Supply has grown by about 21 million in three weeks.
Domestic US production, which hovered near a 29-week high, will climb to 9.5 million barrels a day next year, the most since 1970, according to EIA forecasts.
"The fundamentals are still bearish," said Michael Lynch, the president of Strategic Energy & Economic Research. "This is going to be a very volatile market in the next few weeks."