Hedge Funds Bet on Oil Rally Just Before Saudis Give It a Boost


This Is Where Saudi Arabia Gets Its Oil

Photographer: Simon Dawson/Bloomberg

Hedge Funds were right on the money for a second straight week as oil gets pulled in opposite directions by Donald Trump and Saudi Arabia.

Money managers increased by 5.4% their net bets that West Texas Intermediate crude would rally even as futures tumbled in the week ended Aug. 6, data released Friday show. That was just in time for a 6.7% price jump in the past two days after Saudi Arabia was said to
mull measures
to ease the rout.

A week earlier,
had boosted bets against WTI, before tweets from the U.S. President escalated the trade war with China and tipped the oil market into its biggest plunge since 2015.

“The market seems to be slowly shifting focus from trade and all the demand concerns and now it’s beginning to balance those fears,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Connecticut. “The Saudis’ willingness to take steps to counterbalance slowing demand growth has basically helped stall the slide.”

Hedge funds stayed bullish ahead of a bounceback for oil

The Saudis were quick to act: The kingdom plans to keep
oil exports
below 7 million barrels a day next month in a bid to stabilize the market, a Saudi official said Thursday. That helped ease the impact of a report Friday in which the International Energy Agency
lowered its forecasts
for oil-demand growth for this year and next.

Net-length in WTI — the difference between wagers on an increase and those on a decline — rose to 177,189 options and futures contracts, the U.S. Commodity Futures Trading Commission said Friday. Long-only bets climbed 3.5% while shorts were 0.5% lower.

Still, conditions aren’t ripe for a big rally just yet. Net-length for WTI is near average levels for the past five years, according to Rob Haworth, who helps oversee $151 billion at U.S. Bank Wealth Management in Seattle.

“Unless the Saudis are able to follow through here in short order, I think the risk is really to the downside, because we haven’t unwound that much of the speculation,” he said in a telephone interview. “As the trade spat goes on, it’ll take more out of the market and therefore more out of risk-on assets like oil.”

Other Positions
  • The Brent crude net-long position fell 4.7%, according the ICE Futures Europe exchange.
  • The net-bullish diesel position declined 7.2%.
  • The gasoline net position was 8.7% lower.

— With assistance by Harkiran Dhillon

Original Source

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