Tuesday, April 12, 2016

Reports of oil rally's death premature as inventories decline

From @Bloomberg -- Hedge funds betting that oil’s rally was over missed an 11% gain after US crude inventories unexpectedly fell.

Short positions in WTI crude jumped 35% in the week ended April 5, according to the US Commodity Futures Trading Commission. The next day, the government reported a 4.94 MMbbl drop in US oil inventories, the first decline in eight weeks. "Everybody thought there was going to be a build in the inventories" and the actual data proved otherwise, said Carl Larry, director of oil and gas issues in Houston for consultant Frost & Sullivan. "The market’s bouncing back a little." WTI oil for May delivery dropped 6.2% to $35.89 on the NYMEX during the report week, before rebounding to $39.72 April 8.

Expected Increase

The drop in supplies ran counter to analysts’ forecasts for an increase. Production declined to the lowest level since November 2014 while refiners used the most crude in three months, EIA data show.

US output is sliding after $100 billion in spending cuts last year by explorers amid the worst price meltdown in a generation. The number of active oil rigs in the U.S. declined to the lowest level since 2009, Baker Hughes data show.

Most members of OPEC and other major producers including Russia plan to meet April 17 in Doha, Qatar, to consider an oil-production freeze amid a global glut.

Saudi Arabia, the world’s largest crude exporter, has said it will not cap production unless other producers do the same. Iranian officials, who haven’t committed to attend the Doha gathering, have said their nation plans to expand exports following the removal of international sanctions in January. The meeting can produce an agreement even without Iran’s participation, Nawal al-Fezaia, Kuwait’s OPEC governor, has said. "It looks like investors are betting nothing will come out of the meeting," Dan Flynn, a trader at Price Futures Group in Chicago, said. . "I wouldn’t be so sure about that."


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