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Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.
Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 per cent in the week ended September 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.
US crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the US dropped to a five-year low, Baker Hughes Inc said October 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.
"The US producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."
WTI decreased 1.3 per cent in the report week to $45.23 a barrel on the New York Mercantile Exchange. It settled at $45.54 Friday.
Ample supply
US crude stockpiles, already about 100 million barrels above the five-year average, may swell further. Stockpiles have climbed during October in eight of the last 10 years as refiners slow operations to perform seasonal maintenance.
Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 per cent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.
China has failed to reverse an economic slowdown with five interest-rate reductions since November. The country's growth will slow to 6.8 per cent this year, below the government's goal of 7 per cent, according to the median of economist estimates compiled by Bloomberg. China is the biggest crude-consuming nation after the U.S.
Investors pulled $393 million in September from United States Oil Fund, the largest US exchange-traded product that tracks crude futures, the biggest withdrawal since April.
"There's been nothing to bring the retail investor in to put money in commodity funds," Rob Haworth, a senior investment strategist in Seattle at US Bank Wealth Management, which oversees $128 billion of assets, said. "The managed money has been positive about the market but things look grim. We're at a tough time for oil on a seasonal basis as well."
Other markets
In other markets, net bullish bets on Nymex gasoline increased 3.8 per cent to 17,239. Futures declined 3.8 per cent in the period covered by the CFTC report to $1.3632 a gallon. Net bearish wagers on US ultra low sulfur diesel rose by 11 per cent to 31,263. Diesel futures slipped 2.2 per cent to $1.4976 a gallon.
To investor Jim Rogers, oil holding near $45 a barrel in the face of bearish news is a sign that prices are poised to recover. "When there's bad news and something doesn't decline, it usually means it's at a bottom and will be turning," Rogers, who correctly predicted a commodities rally in 1999, said in an interview in Singapore on Thursday.
