Hedge funds lose faith in oil rally as Opec seen boosting supply

NEW YORK (Bloomberg) - Speculators are losing faith in the oil rally, judging that Opec will keep increasing supply from the highest level since 2012.

Their net-long position in West Texas Intermediate crude dropped 2.1 per cent, as long wagers fell the most in two months and short bets declined to the lowest since August, U.S. Commodity Futures Trading Commission data show.

Opec's push to defend its share of the global oil market has just begun and its members may further increase production, the International Energy Agency said May 13. Saudi Arabia said it boosted output to the highest level in at least three decades. Oil explorers in the U.S. reduced the rig count last week by the least since December, diminishing the probability that supply will contract.

"Until we see some real tightening of supply the market is going to be vulnerable to a pullback," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone May 15. Only "once we get evidence that the fundamentals are changing will prices be able to move higher," he said.

Prices collapsed 46 per cent last year as Saudi Arabia led the Organization of Petroleum Exporting Countries in maintaining production rather than cede market share to booming U.S. supply. The group has become more unified about keeping its output target because prices are now rising, Kuwaiti Oil Minister Ali Al-Omair said May 12. Ministers from the 12-member group are scheduled to meet in Vienna on June 5.

"We'll be in a market where both U.S. production will go up and Opec," Pierre Andurand, chairman of Andurand Capital Management, said in a Bloomberg Television interview May 14. "It's going to be difficult for prices to go much higher in the short term."

Oul futures advanced 35 cents to US$60.75 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. WTI for June delivery rose 12 cents to US$59.81 in electronic trading at 11:28 a.m. Singapore time on Monday.

Global crude oil supply was a "staggering" 3.2 million barrels a day higher in April than a year earlier, the IEA said in a report. OPEC production rose by 160,000 barrels a day in April to 31.21 million, the most since September 2012, according to the monthly report from the Paris-based agency.

U.S. crude production averaged 9.37 million barrels a day in the week ended May 8 after reaching 9.42 million in the week to March 20, the most in Energy Information Administration data since at least January 1983.

"It's pretty amazing that we've been able to maintain production at these levels after the rig count has fallen more than 50 per cent," Kyle Cooper, director of research at IAF Advisors in Houston, said by phone May 15. "This is evidence of the operational efficiency in the exploration and production sector."