Oil’s stint above $50 ends

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(Bloomberg) Was $50 a barrel for oil just a passing fancy?

West Texas Intermediate, the U.S. benchmark, skyrocketed above $52 a barrel at the end of September, teasing investors. But the rally didn’t last long. After hedge funds sliced their net-long position on WTI and pulled back from record bets on rising Brent prices, oil had slipped as low as $49.10 on Friday.

“We just rallied too far, too fast,” said Clayton Rogers, an energy derivative broker at SCS Commodities Corp. in Jersey City. “I think it was just time for a correction.”

After September’s 9.4 percent rally, the usual suspects re-emerged: Saudi Arabia and other OPEC members increased production, Libya restarted its biggest oil field and U.S. output reached a two-year high. On Friday, when concern eased over the impact of Tropical Storm Nate on U.S. Gulf Coast production, WTI dropped below its 200-day moving average.

Investors had initially been concerned over the storm, “given how it’s another punch to the Gulf Coast refining corridor and deep-water Gulf production platforms, but that fear has receded,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC, in interview in New York. “People are basically taking money off the table, locking in profits from the September rally, and getting out of the market”

It doesn’t help that U.S. crude stockpiles remain above their five-year average by more than 70 million barrels at a time when refineries are starting to shut for maintenance. Meanwhile, the top American shale plays, led by the Permian and Eagle Ford basins in Texas, are set to produce a record amount of crude this month.

Hedge funds reduced their WTI net-long position — the difference between bets on a price increase and wagers on a drop — 1 percent to 249,323 futures and options in the week ended Oct. 3, U.S. Commodity Futures Trading Commission data show. Shorts rose 4.1 percent, while longs edged up 0.5 percent.

As for Brent, the net-long position on the global benchmark declined 0.9 percent to 504,263 contracts, after reaching an all-time high the previous week, according to data from ICE Futures Europe.

In the fuel market, money managers decreased their net-long position on benchmark U.S. gasoline by about 8 percent. Diesel remained a bright spot, with the net-bullish position on the fuel extending its surge to a record a little bit, up 0.4 percent.

The strength in the diesel market, used to power trucks, trains and industrial equipment, stems from an improving global economy that’s boosting demand, said Rob Thummel, managing director at Tortoise Capital Advisors LLC, which handles $16 billion in energy-related assets. But in the oil market, doubts around whether the Organization of Petroleum Countries and its allies will extend a deal to curb production and manage to drain the global glut continue to weigh on prices.

Saudi King Salman bin Abdulaziz and Russian President Vladimir Putin talked up their supply-cut deal in a historic meeting in Moscow, suggesting it could be extended, but with so many signs pointing to a glut, their boost to prices was short-lived.

“Oil’s had a heck of a run for the month of September,” Thummel said. “The continued concerns in the market that keeps the shorts active: Is OPEC compliance waning? Will their compliance start to be less? Will they start to cheat more?”

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