Speculators added to wagers that the slump in oil futures, the worst since the global recession, is ending. Prices kept falling anyway.
Money managers raised their net-long position in U.S. crude to the highest in two months in the week ended Dec. 9, U.S. government data show. Most of the change came from short holdings contracting to the lowest level since August.
Oil fell to a five-year low last week after OPEC producers including Kuwait and Iraq reduced prices and the International Energy Agency cut its estimate for global demand for the fourth time in five months. Saudi Oil Minister Ali Al-Naimi indicated he won't trim supply, reiterating OPEC's decision last month to leave the group's production target unchanged even as the U.S. pumps the most oil in more than three decades.
Oil Prices
"A number of investors think we're close to the bottom," Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts, said by phone Dec. 12. "It's always difficult to get the timing right."
WTI sank $3.06, or 4.6 percent, to $63.82 a barrel on the New York Mercantile Exchange during the CFTC report period. The U.S. benchmark fell $1.29, or 2.2 percent, to $56.52 a barrel at 12:56 p.m. on the New York Mercantile Exchange. Brent dropped 52 cents, or 0.8 percent, to $61.33 a barrel.
Shares outstanding of the four biggest U.S. exchange-traded funds that follow oil prices, including the United States Oil Fund (USO) and ProShares Ultra Bloomberg Crude Oil, increased to 96 million on Dec. 11, the most since January 2013, according to data compiled by Bloomberg.
Deep Discounts
Investors added $264.5 million into the four funds so far this month, following a $559.85 million inflow in November that was the most since June 2012.
"This shows that there's a lot of skepticism about the selloff and a feeling that prices should soon rebound," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone Dec. 12. "We're seeing bargain hunting by investors of all stripes."
OPEC's three largest members, Saudi Arabia, Iraq and Kuwait, are offering oil to Asian buyers at the deepest discounts in at least 6 years. "Why should I cut production?" Ali Al-Naimi, Saudi Arabia's oil minister, said in response to reporters' questions Dec. 10 in Lima, where he's attending United Nations climate talks.
The U.S. pumped 9.12 million barrels a day in the period ended Dec. 5, the most in weekly Energy Information Administration started in 1983. The gain came as horizontal drilling and hydraulic fracturing unlocked supplies from shale formations.
Demand Projections
"We'll have to see who blinks first, the Saudis and OPEC or U.S. shale producers," Joe Quinlan, chief investment strategist at Bank of America Corp.'s U.S. Trust, which oversees about $380 billion, said by phone Dec. 12. "Saudi Arabia is fighting for market share."
