Tuesday, June 15, 2010

Big Investors Bid Down Oil Price Futures

By Mark Shenk
June 14 (Bloomberg) -- Hedge funds cut their bets on higher oil-futures prices to a 10-month low as U.S. economic reports signaled fuel demand is diminishing.
Speculative net-long positions, or wagers that prices will increase, in crude futures declined 30 percent to 17,457 contracts on the New York Mercantile Exchange in the week ended June 8, the lowest level since July, according to the Commodity Futures Trading Commission’s Commitments of Traders Report released on June 11. Bets on gains have dropped 87 percent since reaching a record 135,669 in January.
Traders retreated from bets on rising oil prices as the euro depreciated to a four-year low on concern efforts to cut budgets in Europe because of the debt crisis will curb the global rebound. U.S. retail sales unexpectedly fell in May for the first time in eight months, the Commerce Department said June 11. Oil prices in the U.S., the world’s biggest consumer of the fuel, have slipped 15 percent from a 20-month high in May.
“Unwinding long positions makes a lot of sense given the uncertainty about global economic growth, the end of the uptrend in prices and the relatively weak euro,” said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston. “We saw the same factors at work in reverse at the beginning of the year.”
Crude for July delivery rose 1.8 percent to $75.12 today, building on last week’s 3.2 percent gain.
‘Modest Improvement’
U.S. retail sales decreased 1.2 percent in May, the biggest decline since September, according to last week’s Commerce Department report. Companies added 41,000 workers to payrolls in May, the fewest in four months and down from a 218,000 increase in April, the Labor Department said on June 4.
While showing signs of “modest improvement” this year, the U.S. economy will take time to recapture the jobs lost during the recession, Federal Reserve Chairman Ben S. Bernanke said on June 9 in a speech in Richmond, Virginia.
Crude touched $87.15 on the New York Mercantile Exchange on May 3, the highest level since Oct. 9, 2008, before trading as low as $69.51 June 7.
The decline accelerated as the euro weakened against the dollar, reducing the appeal of commodities as an alternative investment. The euro depreciated to $1.1877 on June 7, the lowest level since March 2006, on concern that the region’s sovereign debt crisis would spread from Greece to other nations. The 16-nation currency traded at $1.2229 at 3:43 p.m. today in New York.
Reallocating Assets
The Standard & Poor’s 500 Index has retreated 10 percent since reaching a 19-month high of 1,219.83 on April 26.
“We’re seeing a lot of asset reallocation,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Investors have been selling crude as the euro and equities have dropped.”
Speculators are trimming bets on rising crude prices as the U.S. continues to consume less of the commodity than it did before the global financial crisis. Oil demand in the world’s biggest economy will be 18.97 million barrels a day in 2010, the International Energy Agency said June 10, compared with 20.68 million in 2007. It was 18.77 million barrels a day last year.
Hedge funds and other large speculators were less bearish on natural gas, the CFTC report showed. Net-short positions in gas futures, or bets on falling prices, declined 11 percent to 154,750 lots, the lowest level since the week ended Feb. 19 and the biggest single-week drop since March 2009.
Hurricane Season
Natural gas for July delivery advanced 22.5 cents, or 4.7 percent, to $5.006 per million British thermal units in New York today. The contract touched $4.995 on June 8, the highest price since Feb. 19.
“They are probably getting ready for the hurricane season and possible disruptions in the U.S. Gulf of Mexico,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
Colorado State University researchers boosted their forecast for the 2010 Atlantic hurricane season on June 2, calling for 18 named storms, 10 of them becoming hurricanes. The U.S. season began June 1 and ends Nov. 30.
Gas futures rose to a record $15.78 per million Btu in December 2005 after the worst hurricane season on record damaged production platforms and pipelines in the Gulf of Mexico.
Speculators increased their bets on gains in heating oil futures by 20 percent to 13,809 contracts, the CFTC data showed. Futures for July delivery rose 4.76 cents, or 2.4 percent, to $2.0053 a gallon in New York during the week ended June 11.
Wagers that gasoline futures will gain rose 4.3 percent to 27,100 contracts in New York, the first increase in five weeks. Gasoline for July delivery rose 5.44 cents, or 2.7 percent, to $2.0497 a gallon in the week ended June 11.
--Editors: Bill Banker, David Marino
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net.

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