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Hedge Funds Increase Bullish Oil Bets Most in Eight Weeks: Energy Markets

Date: Monday, December 6, 2010
Author: Asjylyn Loder, Bloomberg

Hedge funds increased bullish bets on oil by the most in eight weeks as signs that the global economic recovery is gaining pace stoked speculation demand for crude will rise.

The funds and other large investors boosted so-called net- long positions, or wagers that oil prices will climb, by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest increase since the week ended Oct. 5.

Oil rose 6.5 percent last week and the Standard & Poor’s 500 Index advanced 3 percent after reports showed manufacturing grew in Europe and China, and Goldman Sachs Group Inc., JPMorgan Chase & Co. and Deutsche Bank AG increased their oil price forecasts for 2011 and 2012. OPEC will meet Dec. 11 in Quito, Ecuador, to review output quotas.

“Over the last couple of weeks sentiment has changed as inventories are drawing down, the stock market is rising and demand around the world has been good,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston “That has them coming back in on the long side.”

Oil for January delivery advanced as much as 57 cents, or 0.6 percent, to $89.76 a barrel in electronic trading on the New York Mercantile Exchange. That’s its highest level since Oct. 9, 2008. The contract was at $88.62 at 10:59 a.m. in London.

Goldman Sachs increased its 2012 forecast to $110 from $100, Deutsche Bank raised its 2011 prediction to $87.50 a barrel from $80 and JPMorgan boosted its 2011 numbers to $93 from $89.75, saying that crude will reach $120 before the end of 2012.

‘Bull Market’

“Looking toward 2012, the stage is set for a return to a structural bull market in oil,” Goldman Sachs analysts led by New York-based David Greely said in a report to investors on Dec. 1. The 2012 forecast is based on “the better prospects for continued robust world economic growth,” they said.

Manufacturing in the euro zone expanded at the quickest pace in four months in November, Markit Economics said Dec. 1. China’s Purchasing Managers’ Index grew at a faster rate for a fourth month, climbing to 55.2 from 54.7 in October, the country’s logistics federation said the same day.

The Organization of Petroleum Exporting Countries will likely keeps its production target unchanged at the Dec. 11 gathering ministers from Angola, Venezuela and Libya said Dec. 1 and Dec. 2. Oil at $80 to $85 a barrel is a “comfortable price,” Angola’s Minister of Petroleum Jose Maria Botelho de Vasconcelos said.

OPEC Quotas

OPEC, which produces about 40 percent of the world’s oil, hasn’t altered its formal limit since December 2008, when it announced record supply cuts and a quota of 24.845 million barrels a day.

Net-long positions in crude oil rose by 24,461 futures and options combined, or 18 percent, to 164,204 the week ended Nov. 30, according to the CFTC report.

The rise in long bets may not indicate bullish sentiment for 2011, said George Zivic, co-founder and chief investment officer of Almanac Capital Management LP.

“Although we are slowly moving to tighter fundamentals, the degree of recent moves in the curve are not justified,” Zivic said. “It makes me think that people are more likely capitalizing on the recent momentum of the market, and will likely do so through the balance of the year.”

Product Demand

Demand for petroleum products fell for a third straight week in the week ended Nov. 26, the Energy Department said Dec. 1. Consumption dropped to 18.5 million barrels a day, the lowest level since Oct. 15.

In other markets, net-long positions in futures and options combined in four natural-gas contracts fell for the first time in five weeks, declining by 10,437 futures equivalents to 71,647 in the week ended Nov. 30, the CFTC report showed. The positions are held by what the CFTC categorizes as managed money, including hedge funds, commodity pools and commodity-trading advisers.

The measure of 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.

Managed money’s bullish, or long, bets on gasoline prices rose 4.3 percent to 65,434 futures and options combined, the CFTC data showed. Net-long bets on heating oil advanced 1.1 percent, or 312 futures and options combined, to 27,238.

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