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Oil Is Looking Unstoppable as Hedge Funds Take Bets to New High

by  Bloomberg | Jessica Summers | Monday, January 29, 2018

Oil Is Looking Unstoppable as Hedge Funds Take Bets to New High
Hedge funds reported record wagers on continued price increases for both US and global oil benchmarks, along with gasoline and diesel.

(Bloomberg) — The enthusiasm in the oil markets is breaking records.


Hedge funds reported record wagers on continued price increases for both U.S. and global oil benchmarks, along with gasoline and diesel. Meanwhile, producers are hedging production at record rates as oil experiences its best January since 2006.

“There is a lot of interest in the direction of crude oil,” Rob Thummel, managing director at Tortoise Capital Advisors LLC, which handles $16 billion in energy-related assets, said by telephone. “The long oil trade continues to be the place to be.”

The tailwinds propelling futures to three-year highs increasingly converge: OPEC has shown unprecedented discipline in sticking to output cuts, Russia and Saudi Arabia are doubling down on their commitment to wipe out the global supply glut, U.S. stockpiles are on their longest downhill slide ever, and last week a boost from a weaker dollar was added to the mix.

Another significant sign the oil crash is behind us, is the clear shift in the futures curve. Both in New York and London, the closer the delivery, the higher the price all the way through 2022. That pattern, known as backwardation, is typical of times when demand is rising and supplies are tightening, and it hadn’t been so marked since 2014.

At the World Economic Forum in Davos last week, Marco Dunand, the head of trading house Mercuria Energy Group Holding SA, said the crude market will remain in backwardation throughout this year with prices trading between $60 and $75 a barrel. BBL Commodities LP, one of the world’s largest oil-focused hedge funds, believes Brent crude will climb to $80 in 2018.

Also in Davos, chatter emerged from Organization of Petroleum Exporting Countries oil ministers on the favorable state of supply and demand.

OPEC Secretary-General Mohammad Barkindo said he sees the much-anticipated rebalancing of the market occurring this year, Russia’s Energy Minister Alexander Novak said that goal is almost in hand and Saudi Minister of Energy and Industry Khalid al-Falih said there are no signs of a significant slowdown in oil demand growth.

“We continue to attract people that think the rebalance is going to continue,” Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone.

A weaker dollar, which has increased the appeal of commodities priced in the currency, has also added to the upward momentum in oil. The Bloomberg Dollar Spot Index has slid 3.5 percent so far this month.

Momentum Trade

“Selling begets selling and and buying begets buying,” Pavel Molchanov, an energy research analyst at Raymond James in Houston, said by telephone. “There is a momentum trade at work here. Technicals look great and there is positive sentiment.”

Hedge funds raised their West Texas Intermediate net-long  position — the difference between bets on a price increase and wagers on a drop — by 2.9 percent to 496,111 futures and options during the week ended Jan. 23, the highest in U.S. Commodity Futures Trading Commission data going back to 2006. Longs advanced by 2.9 percent, while shorts rose 3.6 percent. Another record was the total number of bets on the U.S. benchmark.

The Brent net-long position jumped 2.4 percent to 584,707 contracts, a record-high, according to data from ICE Futures Europe. Longs added 1 percent, also to an all-time high, while shorts retreated 12 percent.

The net-short position of swap dealers, an indication of hedging, increased for a 15th week to a new high, according to the CFTC data released Friday.

In the fuel market, money managers increased their net-long position on benchmark U.S. gasoline by 13 percent to the highest on record, while the net-bullish  position on diesel edged up by 3.7 percent, also to a record.

Other factors helping to propel the U.S. benchmark 9.5 percent this month and attract money managers: the surprise of the price rise itself.

“Not only is it moving, but the consensus was not wildly bullish,” upon entering 2018, Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “Most analysts were neutral to a little bit negative on oil prices for the year.”

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Carlos Caminada, Peter Blumberg.

Oil soars, U.S. crude hits $60/bbl for first time since mid-2015


FILE PHOTO: A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. REUTERS/Lucy Nicholson/File Photo

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices surged to 2-1/2-year highs and U.S. crude touched $60 a barrel in light trading volume on Tuesday, boosted by news of an explosion on a Libyan crude pipeline as well as voluntary OPEC-led supply cuts.

Armed assailants blew up a pipeline pumping crude oil to the port of Es Sider on Tuesday, cutting Libya’s output by up to 100,000 barrels per day (bpd), according to military and energy sources.

The state-run National Oil Corporation (NOC) said in a statement that output had been reduced by 70,000 to 100,000 bpd. The cause of the blast was unclear, it added.

The North African country’s output had been recovering in recent months after being held down for years amid armed conflict and unrest.

Brent crude, the international benchmark for oil prices, settled at $67.02 a barrel, up by $1.77, or 2.71 percent. During the session, front-month prices touched a high of $67.10 a barrel, their highest since mid-May 2015.

U.S. crude climbed $1.50, or 2.6 percent, to end the session at $59.97 a barrel after touching a session high of $60.01, the highest since late-June 2015.

The impending restart of Forties, a key North Sea pipeline, limited the extent of the rally. Oil and gas flows through the pipeline will be increased gradually, its operator Ineos said on Tuesday, adding that the Kinneil processing plant was partially restarted.

“Keep in mind that the field and pipeline are old and it may have issues and it’s probably why the market isn’t selling off,” said Scott Shelton, a broker at ICAP in Durham, North Carolina.

Trading activity was thin following the Christmas holiday and London trading was muted during Boxing Day. About 72,000 contracts of front-month Brent futures changed hands on Tuesday, well below the typical daily average of more than 250,000 contracts.

In the United States, the energy complex was led higher by heating oil futures. Prices rose as much as 3.6 percent to a session high of $2.0410, the highest since early June 2015 on forecasts for cold weather.

Brent has risen 17 percent in the year to date while U.S. crude has rallied about 11 percent so far in 2017.

The Organization of the Petroleum Exporting Countries, plus Russia and other non-members, have been withholding some output since Jan. 1 to relieve a glut. The producers have extended the supply cut agreement to cover all of 2018.

Iraq’s oil minister said on Monday there would be a balance between supply and demand by the first quarter, leading to a boost in prices. Global oil inventories have decreased to an acceptable level, he added.

That outlook is earlier than predicted in OPEC’s latest official forecast, which calls for a balanced market by late 2018. [OPEC/M]

U.S. shipments to China, one of the world’s biggest oil consumers, have benefited from the OPEC-led output cuts. Russia, however, was China’s largest crude oil supplier for the ninth month in a row in November, topping Saudi Arabia for the year so far, China’s customs data showed on Tuesday.

While the OPEC action has lent support to prices all year, market participants have said the unplanned shutdown of the Forties pipeline on Dec. 11 is what helped push Brent to its 2-1/2-year high.

Forties is the biggest of the five North Sea crude streams underpinning Brent, the benchmark for oil trading in Europe, the Middle East, Africa and Asia.

Still, rising production in the United States is offsetting some of the OPEC-led cuts.

The U.S. rig count, an early indicator of future output, held steady at 747 in the week to Dec. 22, according to the latest weekly report by Baker Hughes.

U.S. crude oil inventories were likely down for a sixth straight week, while gasoline stockpiles saw a probable build last week, a preliminary Reuters poll showed on Tuesday.

(Additional reporting by Alex Lawler in London and Henning Gloystein; editing by G Crosse and Tom Brown)

Big Changes Coming?

Piedmont Resources Corporation | Oil; Gas; Gold; SilverA lot has happened in the past few months in the oil business. OPEC has initiated a cap on production from each member country, and seemingly, with good effect. Furthermore, each member has cut production to stabilize oil prices. However, the $64,000 question is, will the Trump presidency be the much-needed panacea for the oil business in the U.S?

President Trump promises the U.S. will become more self-sufficient in its’ energy needs. It’s a great ideological concept and we personally believe it’s entirely possible…which would indeed make our country greater, but can it be done? If so, the U.S. would be under less duress from other oil producing nations by being entirely independent. We remember when the late President Nixon said that the U.S. must become independent in its’ oil production…in fact, we also remember every President since making the same statement.

President Trump appears to have already implemented the tools and taken necessary steps to reverse the restrictive, bureaucratic stone walling regulations of the EPA. Furthermore, under the Obama administration, the so-called environmentalists had more control over the drilling and transportation of oil and gas. Obama was an ideologue, which almost destroyed our great country and this industry, which would have left the U.S. crippled…which may have been his plan from the beginning. Trump’s directives to reverse these Obama-era roadblocks enable a far brighter future for the domestic oil and gas industry. Ultimately, this helps all consumers with lower pricing of their fuel needs and less or no politically motivated policies.

It seems evident however that the U.S. is reluctant to explore and produce more of its’ energy resources. Between the U.S., Canada and Mexico there are enormous potential oil reserves waiting yet to tapped for our use domestically. In fact, research has shown that the U.S. has more oil than Saudi Arabia and Russia combined (CNBC July 5, 2016 article “US oil reserves surpass those of Saudi Arabia and Russia”), as do numerous other industry analysts and reporters have also stated.

Yes, things are now looking somewhat brighter for this industry and all Americans, where many well-paying jobs in oil and gas could be realized again… in addition to the end consumer…which we all are…who will receive all the benefits. Furthermore, the U.S. Federal Government will be in receipt of income and corporate tax revenue from the industry for production, which it has not been receiving for quite some time.

Put on your sunglasses, America, the sun is coming out and it is going to be a lot brighter now. That’s it for now. Keep your heads up, America.