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New York - Oil hasn’t been so tedious in a long time, and hedge funds just don’t know what to do with it.
Their weekly stance on West Texas Intermediate crude prices barely changed as futures are on track to trade in the tightest monthly range since July 2002.
It’s been tough to reconcile the mixed signals from a steady decline in US stockpiles with rising production from shale fields and elsewhere in the world.
Funds "are waiting to see if something is going to happen, if something will break where you’ll get some real movement," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone.
"The other problem is, the fundamentals are kind of mixed, too. You’re just not getting a real clear picture."
In the US, crude stockpiles have dropped almost every week since the start of April and now stand at their lowest since October. But investors question whether the decline is only seasonal, with the summer driving season nearing its end. Plus, shale drillers like EOG Resources say they can keep boosting output at current prices, giving credence to a government forecast that American production will average nearly 10 million barrels a day next year.
If crude inventories continue to decline past Labour Day, then "we could see a push to potentially stabilize around $50," Mark Watkins, a Park City, Utah-based regional investment manager at US Bank Wealth Management, which oversees $142bn in assets, said by telephone.
"Sentiment in the US is starting to become slightly more positive, but the rebalancing act is still taking an extremely long time."
As for Opec, while its two biggest producers - Saudi Arabia and Iraq - promised to strengthen their commitment to cutting production, the group’s output climbed in July to the highest this year.
The International Energy Agency (IEA) said world oil markets are coming back to balance, but slashed its estimates for the amount of crude needed from Opec this year and next.
In that fuzzy context, futures haven’t fluctuated more than $2.45 so far in August. That’s a problem for hedge funds, which get more opportunities to profit from their bets when there are big price swings.
Going back a longer span, it hasn’t been that exciting either. Over the past 12 months prices have been roughly bound to a $42 to $55 band. By comparison, the monthly range reached more than $40 dollars in October 2008.
“This is a market that is, in terms of the larger picture, moving sideways over the last twelve months and here we are at roughly the middle of that range," Tim Evans, an analyst at Citi Futures Perspective in New York, said by telephone.
"Money managers are not giving us a clear indication they all think it’s going higher or that they think it’s going lower. It’s really more of a pause at the middle of the range."
WTI lost 3 cents to $48.79 a barrel as of 12:41pm on Monday in Singapore, after falling 1.5% last week.
Hedge funds decreased their WTI net-long position - the difference between bets on a price increase and wagers on a drop - by 0.8% to 280 109 futures and options in the week ended August 8, data from the US Commodity Futures Trading Commission show. That was only the third time this year when the move was less than 1%. Longs slipped 0.1% and shorts rose 2.2%.
In fuel markets, money mangers are a bit more enthusiastic. The net-long position on the benchmark US gasoline contract climbed 5.2% to the most bullish stance since February. Still, that was a timid move when compared with the 50-plus percentage jumps in the previous five weeks. The net-long position on diesel surged 36% to the most bullish since April.
While last week’s EIA report showed a surprise build in US gasoline supplies, the prior week’s data had shown inventories sliding to the lowest level since December. Distillate stockpiles have declined for four straight weeks.
During the CFTC report period, there were declines in both US gasoline and distillate stockpiles and that’s "certainly consistent with a more optimistic view," Evans said.
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