Speculators’ conviction that oil will rally weakened at the fastest pace in three years, just before futures tumbled into a bear market.
The net-long position in West Texas Intermediate contracted 28% in the seven days ended July 21, US Commodity Futures Trading Commission data show. Long positions dropped to a two-year low while short holdings climbed 25%.
Oil traded in New York fell more than 20% from its June high, meeting the common definition of a bear market. US output has held near a four-decade high while the largest OPEC members pump at record rates, keeping the market oversupplied, Bloomberg reported.
The drop was part of a broader retreat in commodity prices to a 13-year low, driven by concern that slower economic growth in China and a stronger dollar will hurt demand.
“Supply is still in excess of what would balance the market,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone July 24. “We see the global balance improving in the second half of this year and in 2016 but it has not happened yet.”
WTI dropped $2.68, or 5.1%, to $50.36 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Prices slipped into a bear market two days later. The front-month contract fell 26 cents to $47.88 at 1:04 p.m. Singapore time on Monday.
Speculation that Iran will further bolster output is weighing on prices. After its nuclear accord with world powers, Iran will focus on regaining market share it lost because of sanctions, regardless of the impact on prices, Oil Minister Bijan Namdar Zanganeh said on July 20.
