Hedge Funds Turn Gasoline Bears First Time in Four Years: Energy Markets

Date: Tuesday, September 7, 2010
Author: Paul Burkhardt, Bloomberg

Hedge-fund bets against gasoline exceeded wagers that prices will rise for the first time in almost four years as the fuel fell in the final week of the U.S. driving season.

Net-short positions held by money managers in gasoline futures and options increased to 1,169 contracts the week ended Aug. 31, the first time speculators have been bearish since November 2006, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. Hedge funds cut bullish bets for four straight weeks.

Investors have turned bearish on gasoline amid a slide in demand just as the motoring season ends and economic data sends mixed signals about U.S. recovery. While private employers added more workers than economists estimated in August, existing home sales homes grew at the slowest pace in more than a decade in July and orders for durable goods increased less than forecast.

“Money managers didn’t have a lot of reasons to have faith that consumers were back on their feet,” said Hamza Khan, an analyst at the Schork Group in Villanova, Pennsylvania.

Gasoline for October delivery dropped 0.64 cent to $1.9131 a gallon in electronic trading on the New York Mercantile Exchange as of 1:35 p.m. local time. Prices declined 1.5 percent last week.

Demand Slides

Gasoline demand slid 3.1 percent to a 12-week low in the seven days ended Aug. 27, MasterCard Inc. said in its weekly SpendingPulse report. The summer driving season, when consumption peaks, ends today with the U.S. Labor Day holiday.

Sales of existing houses plunged by a record 27 percent in July as a government tax credit expired, figures from the National Association of Realtors showed last month. Orders for durable goods advanced a less-than-forecast 0.3 percent in July, the Commerce Department reported Aug. 25. Private payrolls that exclude government jobs increased 67,000 in August, after a revised 107,000 jump in July, the Labor Department said July 3.

Gasoline inventories have risen in eight of the past 10 weeks and are 14 percent above the five-year average for the period, according to Energy Department data. Stockpiles fell 212,000 barrels to 225.4 million in the week ended Aug. 27, the department reported Sept. 1.

Net-short positions have climbed to the highest level since records began in 2006 amid a drop in trading, Khan said.

Open interest in gasoline futures, the total number of contracts or options that have not been closed, liquidated or delivered, fell 6.5 percent to 235,012 contracts in the week ended Aug. 31. Each contract represents 1,000 barrels.

‘Heart Not in It’

“When we see a decrease in open interest, then the heart is not in it,” Khan said. “The low open interest implies this is stragglers and low-volume trading.”

Futures rose to a high of $2.1935 a gallon on Aug. 3 before sinking 16 percent to a low of $1.8494 on Aug. 24.

Net-long positions held by money managers in crude oil futures and options fell 4.1 percent to 78,695 contracts in the week ended Aug. 31, the fourth consecutive weekly decline and the lowest level since the seven days ended July 9. Net-short positions held by money managers in heating oil futures and options dropped 75 percent to 2,101, the first reversal in three weeks.

Crude oil futures for October delivery slid 0.7 percent to $74.08 a barrel today, following a 0.8 percent drop last week. Heating oil for October delivery fell 0.2 cent to $2.0556 a gallon, after being little changed last week.

The increase in short positions “is just a realization that gasoline supplies are substantially above a five-year average,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Instead of clamoring to build new refinery capacity, we’re looking for new places to sell gasoline.”

To contact the reporter on this story: Paul Burkhardt in New York at pburkhardt@bloomberg.net