Monday, Aug 01, 2016

Dubai:

Wall Street is betting that oil’s recovery may be over before it even really began.

Hedge funds bets against oil reached the highest level in a decade as oil stockpiles have reached their highest point in 20 years.

Short or sell positions by hedge funds rose to 38,897 futures and options contract in the week ending July 26, data from the Commodity Futures Trading Commission showed, the biggest gap in 10 years. Money managers’ short position in WTI rose 28 per cent to 180,134 futures and options.

Prices have been on a downward spiral for nearly two week. Brent crude fell 1.38 per cent to be at $42.93 per barrel after peaking $52.51 on June 8. West Texas Intermediate (WTI) fell 1.23 per cent on New York Mercantile Exchange to $41.08 per barrel, after losing 14 per cent in July, its highest in a year. Oil has shed nearly 19 per cent from its recent peak in early June, nearing a bear market zone of 20 per cent. Oil had been recovering from its lowest level in 12 years, which it struck in January.

“A large overhang of inventory in the crude and product markets has kept the oil price under downward pressure,” said Gary Dugan, Chief Investment Officer at Emirates NBD.

As oil prices have climbed over the past six months, more US shale oil, which was forced out of the markets earlier due to its high cost of production, is coming back on to the market. The US oil drilling rig count climbed by 3 to 374, the highest level since March, Baker Hughes said Friday. US crude inventories rose to 521.1 million barrels through July 22, keeping supplies more than 100 million barrels above the five-year average, according to the Energy Information Administration.

Just how low oil prices may fall is still a matter for speculation. Morgan Stanley sees a price floor of $36 per barrel in the medium term. Morgan Stanley expects more time for oil markets to rebalance even as they expect declines from non-Opec producers to remain muted.

“Markets will take longer to rebalance. they (equities team) show an oversupplied market well into 2017. Moreover, global supply [apart from] US is forecast to be higher from 2015-20. Declines in non-OPEC ex US supply should remain muted,” Adam Longson, commodity strategist with Morgan Stanley said.

By Siddesh Suresh Mayenkar Senior Reporter

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