Speculators boost bullish oil bets to record on Cushing

Hedge funds increased their bullish bets on West Texas Intermediate oil (NYMEX:CLJ14) to a record as rising flows of domestic crude to Gulf Coast refineries cut demand for more costly foreign grades.

Money managers bolstered net-long positions, or wagers on rising prices, on the U.S. benchmark by 2.2% in the week ended Feb. 25, Commodity Futures Trading Commission data show. The positions climbed to the highest level in CFTC data going back to 2006.

Shipments to the Gulf from Cushing, Oklahoma, which is the delivery point for New York futures, began to surge in January, when TransCanada Corp. started moving oil on the southern leg of the Keystone XL pipeline. The added supplies helped narrow the premium of Brent crude, the international benchmark, over WTI to a 21-week closing low of $6.48 a barrel on Feb. 28 from a 2014 high of $14.88 on Jan. 13.

“The completion of the pipeline is clearly having an impact,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The rise in speculative length and the narrowing of the Brent spread are a product of the Cushing supply drops, which should continue.”

Crude declined 60 cents, or 0.6%, to $101.83 a barrel on the New York Mercantile Exchange in the report week. Prices surged as much as $2.38 a barrel to $104.97 today amid escalating tension between Ukraine and Russia, the world’s largest energy exporter. WTI has gained 6.3% this year.

Cushing Supplies

Futures began the reporting period by advancing 0.9% to $103.31 on Feb. 19, the highest settlement since Oct. 8, on speculation that an Energy Information Administration report the next day would show that Cushing stockpiles fell.

Oil slipped 0.4% to $102.92 on Feb. 20 after the EIA said nationwide U.S. crude inventories climbed in the week ended Feb. 14 as gasoline (NYMEX:RBJ14) use slid. Crude supplies rose 973,000 barrels to 362.3 million, the highest level since Dec. 20. Cushing supplies dropped 1.73 million barrels to 35.9 million, the lowest since October. Gasoline demand fell for a third week, down 3.5% to 8.03 million barrels a day.

Crude decreased 0.7% to $102.20 on Feb. 21 amid speculation prices climbed more than justified as the heating season nears its end. WTI increased 10% in the six weeks ended on Feb. 21. It’s the longest run of gains in a year.

Rising Shares

Futures increased 0.6% to $102.82 a barrel on Feb. 24 as the Standard & Poor’s 500 index rose, touching an intraday record. Equities advanced as investors projected that the U.S. economy can withstand a slowdown of the Federal Reserve’s bond- buying program.

WTI dropped 1% to $101.83 on Feb. 25, the biggest decline in three weeks, on projections that a report the next day would show that U.S. supplies rose and on concern that the weakening Chinese yuan will hurt growth in the second-biggest oil-consuming country. The Chinese currency slid for a sixth day, ending below the central bank’s reference rate for the first time since September 2012.

Futures rose 0.7% to $102.59 on Feb. 26 after the EIA said Cushing supplies declined 1.08 million barrels to 34.8 million in the week ended Feb. 21. It was the fourth-straight decrease and left stockpiles at the lowest level since October.

WTI extended gains today after Ukraine, the main conduit for Russian natural gas supply to consumers in Europe, mobilized its army reserves as its neighbor seized control of the Black Sea region of Crimea.

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