(MENAFN- Gulf Times) Oil ended the week on a rebound, but investors remain wary.
Hedge funds cut bets on rising West Texas Intermediate crude prices by the most since October as US shale producers show no signs of slowing. After futures surged past $66 a barrel last month, the spectre of too much supply is sapping confidence that oil can recover the same thrust.
'In 2018, we're on an inexorable march higher on production, said Stewart Glickman, an energy analyst at CFRA Research in New York. 'That has given the market some pause.
American crude production has soared past 10mn bpd for the first time on record, and is forecast to top 11mn later this year. A report on Friday showed US oil explorers haven't had so many rigs searching for oil in almost three years.
That vigour is making the task of bringing the global crude market back into balance look more challenging for the Organization of Petroleum Exporting Countries and its allies. Saudi Arabia Energy Minister Khalid al-Falih said last week that Opec and Russia will discuss a new way to measure oil stockpiles and which inventory levels to consider when they meet in April.
Hedge funds cut their WTI net-long position the difference between bets on a price increase and wagers on a drop by 4.7% to 450,641 futures and options during the week ended February 13, according to the US Commodity Futures Trading Commission. Longs fell 5.1% and shorts slipped 9.6%.
The Brent net-long position dropped 5.6% to 542,935 contracts, according to ICE Futures Europe. Longs slid 5.8% to the lowest level since October, while shorts fell 9.2%. Wagers on higher fuel prices also shrank.
'The sector's still trying to prove itself, said Rob Thummel, who helps manage $16bn in energy assets at Tortoise Capital Advisors LLC. 'Producer discipline is what it's going to take to get the energy sector back in favour. To what extent shale drillers will demonstrate cautious expansion is still unclear but at least a few companies are yielding to investor demands to focus on returns rather than growth. Anadarko Petroleum Corp and Hess Corp are among producers spending less on growth this year.
At the same time, a weaker dollar, boosting the allure of commodities priced in the US currency, bolstered WTI last week. If the currency rebounds, that would put pressure on crude prices, said Bob Yawger, director of futures division at Mizuho Securities.
But the elephant in the room remains US shale. 'It has been a combination of non-fundamental and fundamental factors, said Glickman. 'We should stop underestimating what US shale can accomplish.
An oil pump is seen operating in the Permian Basin near Midland, Texas (file). American crude production has soared past 10mn bpd for the first time on record, and is forecast to top 11mn later this year.
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