Hedge funds are betting the Organization of Petroleum Exporting Countries won't do anything next month to keep crude oil above $40 (U.S.) a barrel.
OPEC ministers are likely to keep their output quota steady at a meeting on Dec. 4 in Vienna, according to analysts from JBC Energy GmbH and Société Générale SA. Last November, Saudi Arabia led the group in maintaining production, accelerating a plunge in oil prices. Supply may swell further next year if Iran resumes sales that were halted by sanctions.
"We remain at risk of falling into an even deeper hole," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "We might be looking for the supply surplus to continue through 2016 and through the first half of 2017."
Money managers' net-long position in West Texas Intermediate crude fell 17 per cent in the week ended Nov. 17 to the lowest in more than two months, data from the U.S. Commodity Futures Trading Commission show. Speculators turned the most bearish ever on gasoline and diesel as U.S. refiners increased production.
WTI fell 8 per cent in the report week on the New York Mercantile Exchange and settled at $40.39 a barrel on Friday, the lowest close since Aug. 26. January futures declined 0.4 per cent to close Monday at $41.75.
OPEC is considering raising its official production target by 1 million barrels a day to 31 million, to take into account returning member Indonesia, according to two OPEC delegates. A change doesn't imply higher production because the group said it pumped 31.38 million barrels a day in October, the 17th straight month above the target.
"OPEC isn't going to do a damn thing, except perhaps confuse the market," Mike Wittner, head of oil-market research in New York at Société Générale SA, said by phone. "All of the expectations are for no change of policy." They may increase quotas to accommodate Indonesia, which would lead to confusion about their policy."
A warmer-than-average winter could weaken heating-fuel demand enough to trigger a drop in the price of crude to $20 a barrel, analysts at Goldman Sachs Group Inc. said in a note on Nov. 18. Inventories in developed countries have expanded to a record of almost 3 billion barrels, the International Energy Agency said Nov. 13.
Speculators' net-long position in WTI dropped by 24,022 contracts to 120,832 futures and options, the lowest since Sept. 1, CFTC data show. Shorts climbed by 16,246 contracts while longs decreased by 7,776. Hedge funds cut their net-long position in Brent by 15 per cent to 158,737 contracts, ICE Futures Europe data show.
In other markets, net bearish wagers on U.S. ultra low sulfur diesel increased 27 per cent to 39,233 contracts, the most in data going back to June 2006. Diesel futures slipped 8 per cent in the period. Speculators were net-short on Nymex gasoline for the first time since 2010. Hedge funds sold 16,708 contracts to end the period short 1,274 lots, also a record short position, as futures dropped 9.1 per cent.
U.S. refineries operated at the highest rate in two months in the week ended Nov. 13, according to the Energy Information Administration. Plants typically ramp up in November after performing seasonal maintenance.
"We're emerging from turnaround season," Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. "We have ample product stockpiles, which should only increase."