OPEC is finally making some headway in its race against the tide of surging U.S. supplies, and speculators are giving the group greater credence.

Hedge funds boosted bets on higher West Texas Intermediate crude prices a second week as futures topped $53 a barrel for the first time in a month, U.S. Commodity Futures Trading Commission data show. While more OPEC members are seen ready to extend output cuts, U.S. crude stockpiles dropped from a record. Fuel supplies are shrinking week after week at a time refineries are stepping up their crude processing ahead of the summer driving season.

"There’s renewed faith that OPEC and non-OPEC will be able to get global inventories lower," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. "We’re also looking forward to the ramp-up of refineries before the summer driving season, which will also help lower crude inventories."

There are many indicators pointing to a more balanced market, Saudi Arabian Oil Co. Chief Executive Officer Amin Nasser said during an event at Columbia University in New York April 14.

World stockpiles should soon start to decline, the International Energy Agency said in a monthly report on April 13. The Organization of Petroleum Exporting Countries said in a report a day earlier that inventories shrank in developed nations during the first quarter, while forecasting that rivals in the U.S. shale industry will boost output.

Money managers’ WTI net-long position, or the difference between bets on a price increase and wagers on a drop, climbed 16 percent in the week ended April 11, according to the CFTC. WTI rose 4.6 percent to $53.40 a barrel in the report week, and closed at $53.18 on April 13. There was no trading on April 14 because of the Good Friday holiday.

OPEC Chatter

Futures closed at the highest in six weeks on April 11 after Saudi Arabia was said to likely support prolonging OPEC output cuts. Ministers are scheduled to gather in Vienna on May 25 to discuss whether the group will roll over for another six months the 1.2 million barrels a day in output curbs that went into effect in January.

"There’s an increasing likelihood that on May 25 OPEC will agree to extend production cuts," Jason Schenker, president of Prestige Economics LLC in Austin, Texas, said by telephone. "The outlook is improving regardless of the high level in overall inventories. The OPEC meeting will take place just before the Memorial Day holiday, which is the start of the summer driving season."

U.S. crude inventories fell 2.17 million barrels from an all-time high in the week ended April 7, according to the Energy Information Administration. Refineries processed 16.7 million barrels a day of crude during the period, the highest since January. U.S. fuel producers typically boost crude processing at this time of year as they prepare for the summer surge in gasoline demand.

The net-long position in WTI rose by 42,199 futures and options to 309,229. Longs climbed 2.8 percent, while shorts tumbled 31 percent, the biggest drop in four months.

Fuel Supply

Meanwhile, gasoline inventories dropped an eighth week, the longest stretch of declines in three years. Stockpiles of distillate fuel, a category that includes diesel and heating oil, fell a ninth week to the lowest since November. It was the longest stretch of pullbacks in distillate supplies since 2010.

Net bullish bets on gasoline climbed 19 percent to the highest since February. Net-long wagers on U.S. ultra low sulfur diesel surged 51 percent, the biggest gain this year.

"The numbers reflect slightly more bullish sentiment in the marketplace," Schenker said. "The continued draw in product stocks is supportive as is the expected start of the summer driving season."

Source:
courtesy of BLOOMBERG

by Mark Shenk

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