OPEC Oversupply Crowds Out Shale

OPEC Oversupply Crowds Out ShaleOPEC Oversupply Crowds Out Shale

Hedge funds reduced both bullish and bearish bets on oil for a fourth week as rising OPEC output was met with forecasts for a contraction in US supply.

Money managers trimmed their short wagers in West Texas Intermediate oil by 4.3 % and long bets by 0.2 %, leading to a 0.8 % gain in the net-long position, US Commodity Futures Trading Commission data for the seven days ended June 16 show, Bloomberg reported.

Trading in futures is falling as WTI swings in a $5 range, the narrowest in 19 months. The Organization of Petroleum Exporting Countries pumped the most oil last month since October 2012, while the US government says output will start falling from this month. Investors are watching a June 30 deadline for Iran and six other nations to reach a nuclear deal that could lift oil sanctions and further swell a global supply glut.

“It’s tough to get conviction one way or the other,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, was quoted by Bloomberg as saying. “The narrow range can lead to diminished activity until the market can get a break-out signal.”

WTI futures fell 17 cents to $59.97 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report and settled at $59.61 on June 19. Saudi Arabia, OPEC’s biggest member, is ready to produce more oil if demand rises, Oil Minister Ali-Al Naimi said June 18. It has 1.5 million to 2 million barrels a day of spare capacity, he said.

Libya may double output to 800,000 barrels a day by next month, according to Mohamed Elharari, a Tripoli-based spokesman for the state-run National Oil Corp.

Iran Supply

Iranian Oil Minister Bijan Namdar Zanganeh presented a letter earlier this month urging OPEC to make way for Iran to pump 4 million barrels a day, back to the level of about 2008 before western sanctions intensified. Iran produced 2.8 million barrels a day in May, according to data compiled by Bloomberg.

“The market is worried about OPEC overproduction,” Michael Hiley, head of over-the-counter energy trading at LPS Partners Inc. in New York, said.

OPEC kept its production target at 30 million barrels a day earlier this month at a meeting in Vienna, maintaining the strategy of defending its share of the global oil market rather than prices. The group pumped 31.6 million barrels a day in May.

US Output

In the US, oil output will fall to 9.19 million barrels a day in February from 9.59 million last month, the Energy Information Administration said. Production will average 9.43 million barrels this year, the most since 1972. The number of rigs searching for oil dropped by 4 to 631 in the week ended June 19, the lowest level since August 2010, Baker Hughes Inc. data show.

Daily production from shale formations such as North Dakota’s Bakken and Texas’s Eagle Ford will shrink 1.3 % to 5.58 million this month, based on EIA estimates. It’ll drop further in July to 5.49 million, the lowest level since January.

Long positions in WTI fell by 688 futures and options combined last week while shorts dropped 2,510, according to the CFTC. The net-long position gained 1,822.