Hedge funds increased their bullish bets on West Texas Intermediate oil to a record as rising flows of domestic crude to Gulf Coast refineries cut demand for more costly foreign grades.
Money managers bolstered net-long positions, or wagers on rising prices, on the U.S. benchmark by 2.2 percent in the week ended Feb. 25, Commodity Futures Trading Commission data show. The positions climbed to the highest level in CFTC data going back to 2006.
Shipments to the Gulf from Cushing, Oklahoma, which is the delivery point for New York futures, began to surge in January, when TransCanada Corp. (TRP) started moving oil on the southern leg of the Keystone XL pipeline. The added supplies helped narrow the premium of Brent crude, the international benchmark, over WTI to a 21-week closing low of $6.48 a barrel on Feb. 28 from a 2014 high of $14.88 on Jan. 13.
“The completion of the pipeline is clearly having an impact,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The rise in speculative length and the narrowing of the Brent spread are a product of the Cushing supply drops, which should continue.”
Crude declined 60 cents, or 0.6 percent, to $101.83 a barrel on the New York Mercantile Exchange in the report week. Prices rose 19 cents to $102.59 on Feb. 28. WTI has gained 4.2 percent this year.
Futures began the reporting period by advancing 0.9 percent to $103.31 on Feb. 19, the highest settlement since Oct. 8, on speculation that an Energy Information Administration report the next day would show that Cushing stockpiles fell.
Oil slipped 0.4 percent to $102.92 on Feb. 20 after the EIA said nationwide U.S. crude inventories climbed in the week ended Feb. 14 as gasoline use slid. Crude supplies rose 973,000 barrels to 362.3 million, the highest level since Dec. 20. Cushing supplies dropped 1.73 million barrels to 35.9 million, the lowest since October. Gasoline demand fell for a third week, down 3.5 percent to 8.03 million barrels a day.
Crude decreased 0.7 percent to $102.20 on Feb. 21 amid speculation prices climbed more than justified as the heating season nears its end. WTI increased 10 percent in the six weeks ended on Feb. 21. It’s the longest run of gains in a year.
Futures increased 0.6 percent to $102.82 a barrel on Feb. 24 as the Standard & Poor’s 500 index rose, touching an intraday record. Equities advanced as investors projected that the U.S. economy can withstand a slowdown of the Federal Reserve’s bond-buying program.
WTI dropped 1 percent to $101.83 on Feb. 25, the biggest decline in three weeks, on projections that a report the next day would show that U.S. supplies rose and on concern that the weakening Chinese yuan will hurt growth in the second-biggest oil-consuming country. The Chinese currency slid for a sixth day, ending below the central bank’s reference rate for the first time since September 2012.
Futures rose 0.7 percent to $102.59 on Feb. 26 after the EIA said Cushing supplies declined 1.08 million barrels to 34.8 million in the week ended Feb. 21. It was the fourth-straight decrease and left stockpiles at the lowest level since October.
Net-long positions in WTI crude increased by 7,195 futures and options combined to 339,052. Long positions gained by 8,467 to a record 360,868, while shorts rose by 1,272 to 21,816.
“The risk for prices is to the upside rather than lower,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There are a lot of bullish factors out there that can move prices higher in the weeks ahead.”
Money managers’ bullish wagers on ultra low sulfur diesel, a category that includes heating oil, surged by 10,827 futures and options combined to 45,420, the highest level in a year.
The fuel gained 0.26 cent, or 0.1 percent, to $3.1043 a gallon in the report week. The contract gained 0.28 cent to $3.0893 on Feb. 28.
Net-long bets on gasoline held by money managers, including hedge funds, commodity pools and commodity-trading advisers, climbed by 14,999 futures and options combined, or 37 percent, to 55,350, the most since September, the CFTC data showed.
Futures decreased 3.42 cents, or 1.2 percent, in the reporting period to $2.7981 a gallon on the Nymex. The contract rose 2.8 cents, or 1 percent, to 2.7898 Feb. 28.
Regular gasoline at the pump, averaged nationwide, gained 0.2 cent to $3.456 a gallon on March 1, according to Heathrow, Florida-based AAA, the largest U.S. motoring group. Retail prices have climbed for 23 days.
Net-long wagers on four U.S. natural gas contracts increased 5,520 futures equivalents, or 1.2 percent, to 447,529, the highest since May.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Natural gas futures fell 45.5 cents, or 8.2 percent, to $5.096 per million British thermal units on the Nymex during the report week. Futures climbed 9.8 cents, or 2.2 percent, to $4.609 Feb. 28.
“Speculators are prepared for the upside potential of the crude oil market, leaving them unprepared for downside risk,” said Tim Evans, an energy analyst at Citi Futures in New York. “This leaves them very vulnerable.”