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New York - Oil investors seem to be the only ones uninterested in Donald Trump’s election.
Money managers raised bets on falling oil prices by the most in more than four years in the week leading up to Trump’s surprise win, amid waning belief in OPEC’s ability to meaningfully cut production. Members of the Organisation of Petroleum Exporting Countries are due to meet November 30 to finalise a deal to curb output.
Failure to reach one may send oil lower amid “ relentless global supply growth,” the International Energy Agency said November 10.
“The market is focused on the OPEC meeting,” said Mike Wittner, head of oil-market research at Societe Generale in New York. “It’s looking like the obstacles to an agreement are getting bigger with both Iraq and Iran raising new issues.”
The rally that followed the Organization of Petroleum Exporting Countries’ preliminary deal reached in Algiers on Sept. 28 has evaporated, sending speculators scrambling.
A surge in West Texas Intermediate short positions, or wagers the US benchmark crude will decline, helped send the resulting net-long position to the biggest slump since May 2012 in the week ended November 8, Commodity Futures Trading Commission data show. Brent shorts surged, posting the biggest increase in more than five years.
WTI dropped 3.6% to $44.98 a barrel in the report week. Prices were up 2% at $44.17 a barrel on Tuesday as of 07:58, rebounding from the lowest close in eight weeks.
Futures rose 0.6% on November 9 amid speculation Trump and a Republican-controlled Congress will pursue business-friendly policies. The market dropped the following three days as the dollar climbed to the highest level in more than nine months against its peers, curbing investor interest in commodities priced in the US currency.
OPEC obstacles
“Trump’s win is having no direct effect on oil,” said Stephen Schork, president of the Schork, a consulting company in Villanova, Pennsylvania. “It’s having a tertiary impact because it’s strengthened the dollar.”
Saudi Arabia, Iraq and Iran, the group’s three biggest producers, are at odds over how to share output cuts, according to an OPEC delegate, who asked not to be identified because the discussions are private. Qatar, Algeria and Venezuela are leading a push to overcome the divide, according to the delegate.
Iraq has sought an exemption from joining any production cuts, arguing that its fight against Islamic State justifies special treatment. Iran has insisted it won’t accept any limits on its production until it has returned to the pre-sanctions level of about 4 million barrels a day. The nation told OPEC that it raised output to 3.92 million in October.
OPEC’s 14 members raised production by 230 000 barrels a day to 33.83 million in October as Iraqi output reached a record and Nigeria and Libya restored halted supplies, IEA data showed November 10.
“Last week we had the IEA and OPEC reports which showed that production was significantly higher October than the previous months,” Wittner said. “The re-balancing of the market continues to get pushed back.”
Money managers’ short position in WTI climbed by 82 791 to 145 319 futures and options, the highest in two months, the CFTC said. Longs rose 2.7%.
In the Brent market, money managers increased short positions by 65% to 142 055 during the week, the highest level since October 2014 and the biggest gain since March 2011, according to data from ICE Futures Europe.
The net-long position in the global benchmark rose by 23% during the week, the biggest increase since September 2014.
In fuel markets, net-bullish bets on gasoline decreased 4.8% to 39 846 contracts, the first decline in two months, as futures slipped 7.7% in the report week. Wagers on higher ultra low sulfur diesel prices tumbled 55% to 9 511. Futures declined 5%.
“There’s huge uncertainty about what Trump will do and how that will impact the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are certain about one thing, and that’s the fact that there’s way too much oil out there.”
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