Hedge Funds Lift Gasoline Bets a 7th Week on French Strike

Date: Monday, October 25, 2010
Author: Paul Burkhardt, Bloomberg

Hedge funds raised their bullish bets on gasoline for a seventh straight week on speculation that a French labor strike will curtail European exports to the U.S.

The funds and other large speculators increased wagers on rising prices to 57,640 futures and options contracts for the week ended Oct. 19, the highest level since May 7, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. The bets have climbed by 58,809 contracts since the week ended Aug. 31, when wagers on declines outnumbered those for gains by 1,169 contracts.

Strikes across France to protest plans by President Nicolas Sarkozy to raise the age for retirement and pensions have caused nine of 11 refineries to shut, while the remaining two run at reduced rates, disrupting shipments to foreign markets. The stoppages, which began at the port of Marseille on Sept. 27, may have cut gasoline production by about 300,000 barrels a day, according to Credit Agricole CIB.

“A lot of funds jumped on the gasoline position thinking that they’d see a little bit of a shakeup with the French strike,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “We are seeing a reduction of imports.”

Gasoline for November delivery on the New York Mercantile Exchange rose 2.51 cents, or 1.2 percent, to $2.0889 a gallon at 9:21 a.m. London time. Prices dropped 1.9 percent last week, the second consecutive decline.

Inventory Slide

Supplies to the East Coast, the main U.S. destination for European gasoline, dropped 13 percent to 53.5 million barrels from Sept. 17 to Oct. 15, according to the Energy Department in Washington. That’s the lowest level since the week ended Aug. 28, 2009.

French labor unions pledged to extend their protests into an eighth week after the Senate approved Sarkozy’s bill on Oct. 22 to raise the retirement age to 62 from 60 and the age for a full pension to 67 from 65.

France hasn’t notified the Paris-based International Energy Agency of any reduction in oil stockpiles below the minimum requirement of 90 days worth of supply, IEA’s Executive Director Nobuo Tanaka said today in Moscow.

Gasoline stockpiles in independent storage in Europe’s Amsterdam-Rotterdam-Antwerp oil-trading hub fell 7 percent to 790,000 metric tons in the week through Oct. 21, according to PJK International BV. That’s the lowest level since February.

Net-long positions in oil held by what the CFTC categorizes as managed money, including hedge funds, commodity pools and commodity-trading advisers, dropped by 15,097 futures and options combined to 163,641, according to the commission report.

Effect on Products

“The French strike in itself doesn’t have as much of an effect on crude oil, but it does in the short term for products,” said Costanza Jacazio, a commodities analyst at Barclays Capital in New York.

Bullish bets on heating oil dropped by 7,482 contracts, the second consecutive decline, the CFTC data showed.

Net-long positions in futures and options combined in four natural-gas contracts rose by 3,480 futures equivalents to 23,514 in the seven days ending Oct. 19, the CFTC data showed. It was the first weekly increase since Sept. 24.

The measure of natural-gas net longs includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps, and ICE Henry Hub Swaps. Henry Hub in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

“The impact of the French strike on the U.S. gasoline market will be relatively limited” because of ample stockpiles, Michael Lewis, a London-based analyst at Deutsche Bank AG, said in an Oct. 22 note. Inventories of the motor fuel rose 0.5 percent to 219.3 million barrels in the week to Oct. 15, according to the U.S. Department of Energy.

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