Oil traders flee as crude price swings below $100
Large traders pulled out of the oil market, cutting bets to a four-year low, as crude climbed above $100 a barrel on rising tension with Iran, then fell on concern over the European economy.
Outstanding contracts among the biggest players in the futures market, including swaps dealers, hedge funds, producers and commercial users, fell by 4.9 percent to 2,207,528 contracts, the lowest since May 2007, in the seven days ended Dec. 20, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Dec. 23.
Oil rose as high as $101.25 on Dec. 13 after Iran announced plans for military exercises in the Strait of Hormuz, a critical waterway for crude shipments, as the U.S. and its allies threatened to increase sanctions over the Persian Gulf country’s nuclear program. Futures plunged as low as $92.52 three days later on speculation that European economic growth may slow, undermining demand.
“People are weary of the incredible volatility of the last few months,” Kyle Cooper, director of research with IAF Advisors in Houston, said by phone on Dec. 23. “With headlines driving the price, it’s very difficult to acquire an edge. The funds trading crude haven’t done very well because there has been no trend.”
Futures for January delivery declined 2.9 percent to $97.22 a barrel on the New York Mercantile Exchange in the week covered by the CFTC report. Futures climbed back again last week to $99.68.
Oil rose 2.4 percent, the most in almost four weeks, on Dec. 13 after Iran’s state-run Fars news agency reported that the navy would hold drills to practice closing the Strait of Hormuz. Futures gained as much as 3.6 percent before the country’s foreign ministry denied plans to close the waterway.
Strait of Hormuz
About 15.5 million barrels a day, or one-sixth of the oil traded worldwide, passes through the strait, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, according to the U.S. Energy Department.
On Dec. 14, the Organization for Petroleum Exporting Countries agreed to raise its production ceiling to 30 million barrels a day, sending futures down by the most since September.
Futures dropped for the next two days, capping the biggest weekly decline since September, on concern that European growth would falter. On Dec. 16, Fitch Ratings lowered France’s outlook and put nations including Spain and Italy on review for downgrade.
Trading Uncertainty
“We don’t know on any given day when we come in the morning what we’re going to be trading on that day,” Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut, said by phone on Dec. 23. “Managed money is having a hard time because they haven’t been able to establish a long run.”
Oil rose again on Dec. 20 as European Union nations, the U.S. and Asia-Pacific allies met in Rome and vowed to increase pressure on Iran to abandon a suspected nuclear-weapons program. The EU imported 450,000 barrels a day of Iranian oil from January to June, about 3 percent of the region’s needs, according to the International Energy Agency in Paris.
Iran produced about 3.56 million barrels a day in November, according to data compiled by Bloomberg News. That’s more than the 3.12 million barrels a day of spare capacity available among OPEC members, according to Energy Department estimates.
Oil rose 6.6 percent last week to $99.68, capping its biggest weekly gain in two months after U.S. economic reports signaled that growth may accelerate.
Reducing Bets
Hedge funds other large speculators cut bullish oil wagers on rising prices by 11 percent, or 22,105 contracts, to 178,881 in the seven days ended Dec. 20, the biggest drop in four weeks.
“They’re reducing their positions because they haven’t been making any money,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone on Dec. 23. “They’ve been getting whipsawed by the large swings in price over short periods of time. They find it difficult to call those sudden swings.”
In other markets, the CFTC said net-short positions in U.S. natural gas held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four natural-gas contracts shrank by 7,321 futures equivalents, or 46 percent, to 8,625, the smallest since October.
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 positions in gasoline declined 6,781 futures and options combined, or 11 percent, to 53,779, the CFTC said. Bullish bets on heating oil fell by 10,121 futures and options combined, or 38 percent, to 16,392, the data showed.