Oil bets are the biggest in 9 years amid Opec, Trump volatility

NEW YORK (BLOOMBERG) - Money managers, producers and consumers made the biggest bets on West Texas Intermediate crude prices in nine years, amid signals more volatility is coming.

Global markets were roiled after Donald Trump's election as US president and as Opec continued negotiations on a deal to cap output. A measure of oil volatility surged last week to a seven-month high, a sign that traders were anticipating bigger price swings.

Wagers on higher and lower prices held by speculators and hedgers reached 1.47 million contracts in the week ended Nov 15, the most since 2007, US Commodity Futures Trading Commission data show. Trading volume of calls giving investors the right to purchase WTI futures surged to a record that day. The CBOE Crude Oil Volatility Index reached the highest since April.

"There's tension in the market, with both producers and consumers worried about what Opec does or won't do on Nov. 30," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "They want to be protected from surprising price moves."

Investors are weighing the chances that the Organization of Petroleum Exporting Countries will complete a deal to cap output at its Nov 30 meeting in Vienna. While Saudi Arabian Energy Minister Khalid Al-Falih told Al Arabiya television he's optimistic a deal will be reached, only 7 of 20 analysts surveyed by Bloomberg last week expect the group to set output targets for its members.

Opec agreed in September to cut their collective output to 32.5 million to 33 million barrels a day and has been trying to persuade other suppliers, notably Russia, to join the cuts. Opec Secretary General Mohammed Barkindo said he's confident the group can reduce record oil inventories and bring forward the rebalancing of the market.

"The Saudis are working hard to reach a deal," said John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy. "You don't fight the Fed in the bond market and when it comes to oil you don't fight the Saudis."

The September agreement marked the end of Opec's two-year long experiment with pumping at will. Saudi Arabia led the group in the effort to grab market share and curb the development of more expensive reserves such as US shale.

While US production has dropped from last year's 44-year high, the decline is slowing. The Energy Information Administration this month raised its output forecast for 2017. Rigs targeting oil in the US rose the most in 16 months last week, according to Baker Hughes Inc.

Producers and merchants increased short positions, or protection against lower WTI prices, to the highest level since March 2011. They added 66,613 bearish contracts over the past two weeks as prices retreated from last month's peak at above $50 a barrel.

"The Saudis want higher prices but won't sacrifice just to see a major competitor, US shale, benefit," said Sarah Emerson, managing director of ESAI Energy Inc, a consulting company in Wakefield, Massachusetts. "The Trump election changes things. In one day the US shale business got better. The government will be more responsive to the industry."

Money managers' net-long position in WTI advanced for the first time since mid-October, climbing by 3,906 futures and options to 163,321. Shorts climbed 14 per cent while longs rose 8.1 per cent.

WTI gained 1.8 per cent to US$45.81 a barrel in the report week, before settling at US$45.69 on Nov. 18.