BLOOMBERG

Hedge Funds Raise Bullish Oil Bets as Drillers Idle Rigs
by Daniel Murtaugh / 7:01 PM EST / February 22, 2015


(Bloomberg) -- Speculators raised bullish oil bets for the first time in five weeks as producers curbed new
drilling.


Hedge funds and other money managers increased net-long positions in West Texas Intermediate crude
by 2.7 percent in the week ended Feb. 17, U.S. Commodity Futures Trading Commission data show.


Futures rose 7 percent in the report week as companies including Total SA and Apache Corp. said they
would cut spending and drill less. The number of oil rigs in the U.S. tumbled 35 percent since Dec. 5 to
the fewest since 2011, according to Baker Hughes Inc. Outlays for exploration and production will drop
by more than $116 billion in 2015, Cowen & Co. estimates.


“People are starting to realize that all the slashing of budgets, the layoffs and the declining rig counts are
going to have an impact,” said Phil Flynn, a senior market analyst at the Price Futures Group in Chicago.
“The debate is whether the bottom is in or not, and a lot more hedge funds are betting that it probably is.”


WTI futures rose $3.51, or 2.7 percent, to $53.53 a barrel on the New York Mercantile Exchange in the
week covered by the report. The contract for April delivery fell $1.36 today to settle at $49.45 a barrel.
Prices have slipped by more than half from last year’s high in June.


Drilling Cutbacks
More than 30,000 worker dismissals have been announced across the industry as companies trimmed
budgets, according to data compiled by Bloomberg News.


Oil explorers idled rigs for the 11th straight week, reducing them by 37 to 1,019, Baker Hughes said Feb.
20.


“We have had some cuts in capital spending and a fairly dramatic drop in the drilling rig count, which
does point in the direction of rebalancing over the intermediate or longer term,” Tim Evans, an energy
analyst at Citi Futures Perspective in New York, said by phone Feb. 20.


U.S. crude output rose to 9.28 million barrels a day the week of Feb. 13, the highest weekly level on
record in Energy Information Administration data going back to 1983. U.S. output will increase 7.8
percent to 9.3 million barrels a day this year, the most since 1972, the EIA estimates.


Net-long speculative positions in WTI rose by 5,462 to 209,158 futures and options in the week ended
Feb. 17, according to the CFTC. Long positions increased by 2.6 percent to 309,624, while short bets
gained 2.5 percent to 100,466.


‘Tortured’ Diesel
In other markets, net bearish wagers on U.S. ultra low sulfur diesel plunged 38 percent to 20,278
contracts as the fuel gained 7.9 percent to $1.9774 a gallon in the report week.


There were still 56,407 speculative short bets on diesel on Feb. 17. Prices jumped 6.8 percent in three
days to settle at $2.1118 on Feb. 20 as cold weather in the eastern U.S. drove up demand just as refinery
outages in Pennsylvania and New Jersey curtailed supplies. Diesel settled at $2.2179 today.


“Heating-oil money managers did not want to be as short ahead of the cold snap as they had been,” Evans
said. “Others are still being tortured by the swing in prices.”


Net-bullish bets on gasoline fell 18 percent to 44,383 as futures rose 2.4 percent to $1.5901 a gallon on
Nymex. They settled at $1.6462 today.


Regular gasoline at U.S. pumps climbed 0.4 cent to average $2.28 a gallon Feb. 20, the highest since Dec.
28, according to Heathrow, Florida-based AAA, the country’s largest motoring group.


Natural Gas
Net-short wagers on U.S. natural gas fell 5.2 percent to 43,947. The measure includes an index of four
contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures,
Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex
natural gas rose 3.1 percent to $2.759 per million British thermal units in the week covered by the report.
Natural gas settled at $2.879 today.


EOG Resources Inc., the largest shale oil producer in the U.S., said it plans to reduce spending 40 percent
this year and trim the number of completed wells by almost half compared with 2014. EOG increased its
oil output by about 50 percent annually since 2009.


“There seems to be this entrenched long position,” Andrew Lebow, senior vice president at Jefferies
Bache LLC in New York, said by phone Feb. 20. “It’s not getting shook out because of the optimism
going forward that the U.S. market will improve if production starts to decline.”


To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard
Stubbe, Stephen Cunningham


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.