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Hedge Fund Bulls Push U.S. Gasoline to Labor Day Record

Date: Tuesday, September 4, 2012
Author: Asjylyn Loder, Bloomberg

Hedge funds raised bullish bets on gasoline to more than a three-month high, helping push prices at the pump to record levels for the U.S. Labor Day holiday, as Hurricane Isaac roared toward the Gulf of Mexico and a deadly blast closed Venezuela’s largest refinery.

Money managers increased net-long positions, or wagers on rising prices, by 3 percent in the seven days ended Aug. 28, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Aug. 31. They were the highest since the week ended May 1.

Customers pump gas at an Arco station in Los Angeles, on July 2, 2012. Photographer: Kevork Djansezian/Getty Images

Gasoline futures have advanced 22 percent from a 2012 low in June as stockpiles dropped and refineries closed. Futures reached a four-month high last week as Isaac closed 13 percent of fuel-making capacity on the Gulf coast and a gas explosion at Venezuela’s Amuay plant shut production, threatening to revive the debate about energy costs as President Barack Obama seeks re-election. Crude oil, buoyed by Middle East tension and the prospect of fiscal stimulus, also boosted the motor fuel.

“Everyone is pretty bullish,” Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania, said by phone Aug. 31. “The bottom line is we have a dearth of refining capacity and not enough ability to make gasoline. On top of that, we’ve had a big rally in oil.”

Gasoline for September delivery rose 2 percent in the week covered by the report to $3.1261 a gallon on the New York Mercantile Exchange and closed at $3.1056 on Aug. 31, when they expired. The fuel jumped 6.6 percent in August.

Pump Prices

Regular gasoline at service stations, averaged nationwide, cost $3.827 a gallon on Sept. 1, a record for the date and the highest level since April 25, according to data from Heathrow, Florida-based AAA, the largest U.S. motoring group, compiled by Bloomberg. It remained at that level yesterday, 4.6 percent more than a year earlier.

“We expect it to continue to break highs the next few days at least,” Michael Green, a spokesman for AAA in Washington, said Aug. 30 by e-mail. “We wouldn’t expect the price to change too much by the end of the weekend.”

The increase is helping reignite an issue that has pitted Obama, who has called for the elimination of billions of dollars of subsidies enjoyed by the oil and gas industry, against Mitt Romney, the Republican nominee.

Gasoline for October delivery advanced 0.9 percent to $2.9333 in the week covered by the report and settled at $2.9728 on Aug. 31. The futures were up 1.7 cents at $2.9898 at 1:15 p.m. in New York. The discount to September fuel reflects speculation that demand will slip as the driving season ends with Labor Day today, and the switch to winter-grade fuel that’s cheaper to produce and needs to meet less-stringent emissions rules.

Futures Contracts

September contracts rose 1.3 percent to a 16-week high on Aug. 22 after an Energy Department report showed stockpiles slipped to a 10-week low, and minutes from a Federal Open Markets Committee meeting indicated policy makers may expand fiscal easing soon.

Gasoline stockpiles declined to 201.2 million barrels, the Energy Department said Aug. 29. It was the lowest since the week ended May 25.

Futures gained again on Aug. 23 as Isaac, the ninth named storm of the Atlantic hurricane season, forced offshore workers to evacuate, and threatened to curb oil and gas output from the region and suspend operations at coastal refineries.

The contracts jumped 2.5 percent on Aug. 27 to $3.1548, the highest since April 30, as the storm roared toward landfall in Louisiana. The Gulf region is home to 23 percent of U.S. oil production, 7 percent of natural-gas output and 44 percent of refining capacity, according to the Energy Department.

Hurricane Isaac

Isaac forced companies including BP Plc (BP/), Apache Corp., Murphy Oil Co. (MUR), Royal Dutch Shell Plc (RDSA) and Anadarko Petroleum Corp. to temporarily shut output and evacuate workers. Closures peaked on Aug. 30, with 95 percent of oil production shut in and 73 percent of natural gas, according to the Bureau of Safety and Environmental Enforcement.

The strain on the U.S. refining system was compounded by increased fuel demand from Latin America and the Aug. 25 explosion and fire that killed at least 42 people and halted production from Petroleos de Venezuela SA’s Amuay plant, which can process 645,000 barrels of oil a day.

PDVSA, as the state-owned oil producer is known, is the sole owner and operator of the refinery. The Paraguana complex has a capacity of about 950,000 barrels a day, second in size to Reliance Industries Ltd.’s Jamnagar refinery in India, data compiled by Bloomberg show.

Oil Output

Rising U.S. oil and natural gas production has made the country a global export hub for gasoline and diesel. Drilling in formations such as the Bakken shale in North Dakota helped push U.S. oil output July to the highest since 1999, according to the Energy Department.

The surge in production helped the U.S. meet 81 percent of its energy needs last year, the most since 1992. The country became a net-exporter of refined products for the first time since World War II as Latin American refining capacity remained insufficient to meet the region’s demand.

Venezuela imported an average of almost 38,000 barrels of refined products from the U.S. in the first five months of the year, up from about 23,000 barrels in the same period last year, according to data from the U.S. Energy Information Administration. Brazil imported an average of about 146,000 barrels a day this year through May, an increase of 17 percent from last year, the data show.

Rising oil prices also pushed gasoline higher. Crude has advanced 24 percent from a 2012 low in March as the U.S. and European Union tightened sanctions against Iran and slow economic growth raised speculation that policy makers will ease fiscal policy.

Iranian Decline

Iran’s output has declined 23 percent this year to 2.75 million barrels a day in August, according to data compiled by Bloomberg. Iran’s southern coast overlooks the Strait of Hormuz, a waterway through which about 20 percent of the world’s oil passes.

Oil advanced 2 percent to $96.47 a barrel on Aug. 31 after Federal Reserve Chairman Ben S. Bernanke said the central bank may take additional measures to help lower U.S. unemployment, which has been above 8 percent since 2009. Futures for October delivery rose 58 cents to $97.05 a barrel in electronic trading today on the Nymex.

Money managers increased bullish bets on higher gasoline prices by 2,124 to 72,571 in the week ended Aug. 28, the CFTC data show.

Net-long positions in oil held by money managers, including hedge funds, commodity pools and commodity trading advisers, advanced 12,945 futures and options combined, or 7.2 percent, to 192,471 futures and options combined, the data show. Oil declined 35 cents a barrel to $96.33 on the Nymex in the week covered by the report.

Heating Oil

In other markets, money managers raised bets on U.S. heating oil, a proxy for diesel, for a ninth consecutive week. Net-long wagers advanced 4,352 futures and options combined, or 23 percent, to 23,083, the highest since the week ended May 8, the CFTC report showed. Heating oil was little changed at $3.1203 a gallon in the week of the report before settling at $3.1696 on Aug. 31. Heating oil for October delivery rose 1.85 cent to $3.1987 a gallon at 1:15 p.m. in New York.

Net-long bets on four natural gas contracts fell for a fifth straight week, dropping by 23,217 futures equivalents, or 16 percent, to 126,105, the lowest since the seven days ended June 19, the CFTC data show. Natural gas declined 5.8 percent in the week covered by the report to $2.614 per million British thermal units. Futures were at $2.786 at 1:15 p.m. in New York.

The measure 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.