Hedge Funds Increase Bullish Bets on Oil to Six-Month High

Date: Monday, November 1, 2010
Author: Asjylyn Loder, Bloomberg

Hedge funds raised bullish bets on oil to the highest level in more than six months as supplies of gasoline fell, French refinery strikes ended and plants in the U.S. and Europe returned to service.

The funds and other large speculators increased wagers on rising crude prices by 9.3 percent in the seven days ended Oct. 26, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest level since April 16.

The proportion of U.S. refineries in operation climbed to the highest level in more than a month as plants returned to service following seasonal maintenance that has eroded supplies of gasoline and distillates such as heating oil and diesel. At the same time, French plants resumed processing following monthlong protests against plans by President Nicolas Sarkozy to lift the age of retirement and pensions, raising the prospect of increased demand for crude.

“The biggest factor we’ve seen on the physical side is the ending of the strike in France and the returning of refineries to operation,” said Andy Lipow, president of Lipow Oil Associates LLC, a Houston-based energy consultant. “The other major item was the significant decline of gasoline and distillate supplies in the U.S.”

Gasoline supplies in the U.S. declined 4.39 million barrels to 214.9 million, the lowest level since November 2009, the Energy Department reported last week. Stockpiles of distillates fell 1.61 million barrels to 168.4 million, the lowest level since July.

French Refineries

The protests in France, Europe’s second-largest oil- processing country after Germany, shut all but two of the nation’s 11 refineries. Exxon Mobil Corp. said on Oct. 29 it started pumping crude from the port of Le Havre in northwest France to the Gravenchon refinery. Protests also ended at Total SA’s Gonfreville refinery.

The constitutional court is reviewing the French pension bill. President Sarkozy has said he will sign it.

The proportion of U.S. refineries in operation rose to 83.7 percent in the seven days ended Oct. 22 from 82.5 percent the previous week, the highest level since September, as plants finished seasonal maintenance, according to the Energy Department.

Citgo Petroleum Corp. said Oct. 28 it returned all units to service at the refinery in Lemont, Illinois. The plant can process 170,500 barrels of crude a day. Motiva Enterprises LLC said it planned to start units at Port Arthur, Texas last week.

Market Direction

Oil for November delivery fell 75 cents to settle at $81.43 a barrel on Oct. 29 on the New York Mercantile Exchange. Futures rose 1.8 percent in October and 11 percent in September.

Crude has traded between $64.24 a barrel and $87.15 a barrel this year, the narrowest range since 2006, and is up 2.6 percent on the year.

“It’s still very unclear where this market could go,” said Jason Schenker, the president of Prestige Economics LLC, an Austin, Texas-based energy-research firm. “It ran up very quickly in September, and has been very volatile in a range in October. The question is how is this going to break out.”

Net-long positions in oil held by what the CFTC categorizes as managed money, including hedge funds, commodity pools and commodity-trading advisers, rose by 15,183 futures and options combined to 178,824, according to the CFTC report.

Bullish, or long, bets on gasoline prices declined 10 percent to 51,732, the first drop in eight weeks, the data showed. Net-long bets on heating oil fell for a third week, retreating by 1,609, or 4.1 percent, to 37,284.

Net-long positions in futures and options combined in four natural-gas contracts decreased by 2,133 futures equivalents to 21,381 in the week ended Oct. 26, the CFTC data showed.

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.

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net