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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Hedge Funds Turn Bullish Amid Minor Correction

trading

U.S. West Texas Intermediate crude oil futures posted a volatile two-sided trade this week before turning decisively lower for the week. Volume was light at the start of the week due to a U.S. bank holiday, but that didn’t stop prices from edging lower on Monday.

Rising Supply Worries

The early trade was influenced by concerns over rising supply from OPEC and the United States. However, losses were limited by worries over falling Iranian output as we inched closer to the start of U.S. sanctions in November.

According to a week-end report, output from OPEC rose by 220,000 barrels per day (bpd) between July and August, to a 2018-high of 32.79 million bpd. The rise in output was fueled by a recovery in Libyan production and strong Iraqi exports.

Additionally, traders were saying that rising U.S. production could become an issue after Baker Hughes reported on August 31 that U.S. drillers added oil rigs for the first time in three weeks. The rig count increased by 2 units to 862. Furthermore, in August, the U.S. Energy Information Administration reported that U.S. crude oil production hit a record 11 million bpd.

Hedge Funds Increase Bullish Bets

Other supportive news was government data released on August 31 that said hedge funds are betting that the markets will be supported by the notion that U.S. sanctions on Iranian crude oil exports will eventually lead to constricted markets.

Hurricane Spike

Prices spiked higher on Tuesday with the near-term October futures contract taking out its summer top after a developing hurricane in the Gulf of Mexico caused the evacuation of two Gulf of Mexico oil platforms, disrupting supply operations.

Sellers Return

Sellers retook control on Wednesday, driving speculative buyers out of the market after Hurricane Gordon missed the key crude oil platforms in the Gulf, ending worries over a potential supply disruption. This shifted the focus back to the traditional supply/demand fundamentals.

The weakness after the hurricane price spike suggested investors had shifted their focus away from supply concerns, which drove up prices last week, to demand concerns. One issue bothering bullish traders is the risk of declining Chinese demand for oil. According to CNBC, Middle East officials are worrying more about China at this time than Iran’s supply curbs as a result of U.S. sanctions.

China Demand is a Worry

Bahrain and Oman’s oil and gas…




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