Hedge funds betting oil would sink toward $40 a barrel missed the biggest rally in eight weeks.
Money managers’ short positions in West Texas Intermediate crude jumped 24 percent in the week ended Oct. 27, according to data from the Commodity Futures Trading Commission. Net-long positions declined 15 percent, the most since July.
Oil surged after a government report on Oct. 28 showed that US refiners came back from seasonal maintenance faster than expected, boosting crude demand. Prices slipped to a the lowest level since August before the data’s release on concern that oil companies aren’t cutting production fast enough to stem a global oversupply.
“There are a lot of momentum traders in the market,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “They were betting that prices were going to fall further. They obviously didn’t get that.”
WTI fell 5.2 percent in the report week to a two-month low of $43.20 a barrel on the New York Mercantile Exchange. The contract traded at $46.31 a barrel at 9:48 a.m. on Monday.
BP Plc and Royal Dutch Shell Plc were among oil companies that last week reported higher production in the third quarter than a year earlier. Even as Baker Hughes Inc. data show the number of active oil-drilling rigs in the US are down more than 60 percent from a year ago, U.S. production is 1.6 percent higher.
Crude demand jumped the most in six weeks as refiners in the U.S. Midwest increased rates, according to the Energy Information Administration. American plants typically slow after summer months to perform maintenance during a low-demand period.
Speculators’ net-long position in WTI declined by 24,910 contracts to 143,291 futures and options, the least since the week ended Sept. 8, CFTC data show. Shorts surged by 25,047 contracts while longs increased by 137.
Traders curbed their bullish stance in Brent crude during the period to the lowest since Sept. 1. Speculators cut Brent net-longs to 161,916 contracts, according to data from ICE Futures Europe.
In other markets, net bearish wagers on U.S. ultra low sulfur diesel increased 16 percent to 37,286 contracts, the most in data going back to 2006. Diesel futures dropped 1.7 percent in the period to $1.4244 a gallon. Net bullish bets on Nymex gasoline declined 6.6 percent to 12,081, the least since July. Futures rose 0.7 percent in the period covered by the CFTC report to $1.2872 a gallon.
“Alarmingly high” distillate fuel storage utilization in the U.S. and Europe may force refiners to cut runs and pressure oil prices, according to Goldman Sachs Group Inc. Near-record refinery runs, modest demand growth and more supplies from the Middle East and China has pushed stockpiles of distillates, which include diesel fuel and home-heating oil, to near-record levels, analysts including Damien Courvalin wrote in an Oct. 25 report.
“The CFTC figures show that there’s a profound glut in distillate supplies,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “The Chinese have increased refining capacity and are now exporting distillate and the Saudi refiners are increasing output and adding a great deal of supply to the market.”