Oil’s 50% Drop From 2014 High Stokes Faith in Rally.

http://www.bloomberg.com/news/2014-12-22/oil-s-50-drop-from-high-of-2014-stokes-faith-in-a-rally-energy.html

The slump in oil that drove U.S. prices down as much as 50 percent from this year’s high is spurring the most bullish bet by hedge funds in four months.

Speculators expanded their net-long position in West Texas Intermediate crude by 14 percent in the week ended Dec. 16, U.S. Commodity Futures Trading Commission data show. Long wagers increased the most since February.

Money managers have increased their net-long position by 34 percent in three weeks, even as prices kept tumbling as OPEC ministers reiterated pledges to keep pumping. Their bullishness is also reflected in exchange-traded funds that track oil, which attracted the most money in four years this month.

“People are starting to feel that we not only hit the bottom but we are turning around,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Dec. 19. “The fundamentals haven’t really changed.”

WTI fell $7.89, or 12 percent, to $55.93 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report and touched $53.60, the lowest since May 2009. Futures slipped 98 cents, or 1.7 percent, to $56.15 at 9:44 a.m. local time.

Saudi Arabia’s Oil Minister Ali Al-Naimi said it’s “difficult, if not impossible” for his country and OPEC to give up market share, the Saudi Press Agency reported Dec. 18. The “temporary” instability in oil markets is being caused mainly by a slowing global economy, he was reported as saying.

“The oil market will recover,” Al-Naimi said yesterday at a conference in Abu Dhabi. “We are now in a provisional, correctional period,” said Mohammed Al Sada, Qatar’s energy minister.

Slower Demand

The International Energy Agency on Dec. 12 cut its forecast for global demand next year and raised its estimate for non-OPEC supply. U.S. output, already at a three-decade high, will continue to rise, the Paris-based IEA said.

“Short-term supply is still stronger than demand,” Gareth Lewis-Davies, a London-based analyst at BNP Paribas SA, said by phone Dec. 18. “There is nothing that convinces me that we are not going to have a quite significant supply build in the first half of next year.”

The four biggest U.S. exchange-traded products tied to oil, including the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil, received a combined $859.3 million this month as of Dec. 18, according to data compiled by Bloomberg. It’s the most in any month since May 2010.

OPEC Meeting

Oil plunged 23 percent since Nov. 26, the day before the 12-nation Organization of Petroleum Exporting Countries decided to maintain its output target. The group pumped 30.6 million barrels in November, above its 30-million-barrel quota for a sixth month, according to data compiled by Bloomberg.

“OPEC is no longer relevant,” Francisco Blanch, head of global commodities and derivatives research for Bank of America, said on Bloomberg TV Dec. 17. “Saudi has pulled the plug and is letting the market balance itself.”

U.S. crude production reached 9.14 million barrels a day in the week ended Dec. 12, the most in EIA weekly data from 1983.

On Brent, hedge funds and other money managers raised bullish bets for a fourth week.