Oil Prices Higher on Bullish Bets
February 20 2017 - 11:10PM
Dow Jones News
By Jenny W. Hsu
Crude futures moved higher in Asia Tuesday as investors held on
to their bullish positions, betting on the supply to tighten as
major oil producers cut their output.
On the New York Mercantile Exchange, light, sweet crude futures
or the West Texas Intermediate for delivery in March traded at
$53.70 a barrel at 0152 GMT, up $0.30 in the Globex electronic
session. April Brent crude on London's ICE Futures exchange rose
$0.04 to $56.22 a barrel.
"Despite prices stuck in a tight trading range, Commodity
Futures Trading Commission data showed investors raised their net
long positions in WTI and Brent to a record high level," said ANZ
Research.
Last week, hedge funds and other big money managers increased
their net long position--a bet on rising prices--in Brent crude oil
to the highest level since records started in 2011, the
Intercontinental Exchange Inc. said Monday. This mirrors the U.S.,
where funds have raised their bullish bets to a fresh record.
Optimism in the market stems from the high compliance rate of
over 90% from a group of oil producers who have agreed to curtail
their production. The pact, signed last year, calls for the group
to cut their collective daily production by 1.8 million
barrels.
This joint effort by the Organization of the Petroleum Exporting
Countries and 11 other non-cartel producers is expected to push
global oil prices to $60 a barrel by the end of the year, despite
the growth in U.S. supply, said Gordon Kwan, the head of Asia oil
and gas at Nomura.
He pointed out that the world's crude demand is expected to grow
by 1.4 million barrels a day in 2017. Assuming that the OPEC-led
initiative maintains a 90% compliance rate translating to around
1.5 million barrels a day, the market could see a combined shortage
of 2.9 million barrels a day.
"There is no way that the U.S. can make up the differences,"
said Mr. Kwan, adding that despite the rise in oil drilling
activities in the U.S., shale producers are expected to add at most
around 1 million barrels a day to the market.
However, other analysts view U.S. oil as a real threat that
could delay the market from rebalancing as drillers there have
invested heavily to increase efficiency and reduce production
costs. As the U.S. oil production balloons, so has its exports.
BMI Research notes crude exports from the U.S. reached a record
high in the week ended February 10, with most of the volume
directed to Asia--the fastest growing market and the longstanding
battleground for OPEC nations.
In fact, OPEC's top producers are prioritizing trades with Asia
over the U.S. and Europe in order to maintain market shares, the
firm added.
"You can say the U.S. is the counterforce against OPEC," said
Vivek Dhar, a commodities strategist at Commonwealth Bank of
Australia.
Nymex reformulated gasoline blendstock for March--the benchmark
gasoline contract--fell 116 points to $1.5050 a gallon, while March
diesel traded at $1.6465, 101 points higher.
ICE gasoil for March changed hands at $497.00 a metric ton, down
$0.50 from Monday's settlement.
Georgi Kantchev contributed to this article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
February 20, 2017 22:55 ET (03:55 GMT)
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