(Bloomberg) -- Oil investors are growing more doubtful that OPEC can seal a deal.
Money managers reduced bets on higher oil prices by the most since July 2014 after the group failed to agree on country quotas in talks on Oct. 28 in Vienna. The rally following the Organization of Petroleum Exporting Countries' preliminary deal in late September has disappeared as questions mount about whether OPEC can implement the first supply cuts in eight years at its Nov. 30 summit.
“The market has gone from taking OPEC's pledge at face value to questioning whether they will be able to come to any agreement at all,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
In addition to cutting long positions in West Texas Intermediate in the week ended Nov. 1, money managers increased their short positions, or wagers that prices will fall, Commodity Futures Trading Commission data show. The resulting net-long position decreased 13 percent.
WTI dropped 6.6 percent to $46.67 a barrel in the report week. The U.S. benchmark grade advanced 82 cents, or 1.9 percent, to settle at $44.89 on Monday.
Prices slipped below $44 a barrel on Nov. 4 after Reuters reported that Saudi Arabia threatened to raise output if other OPEC members didn't agree to cuts. Losses eased after OPEC Secretary-General Mohammed Barkindo said the kingdom didn't make the threat.
‘Significant Progress'
The producer group made “significant progress” during talks on Oct. 28, and again when it met the following day with representatives from non-member nations including Russia and Brazil, Barkindo said. It's too early to say how much these other countries may be willing to cut, he added.
While Goldman Sachs Group Inc. sees little probability of a deal at the Nov. 30 meeting, Bank of America Merrill Lynch and Citigroup Inc. say an accord is likely. Saudi Arabia and Russia are “hungry for an agreement,” Ed Morse, head of commodity research at Citigroup, said Nov. 3 in a telephone interview.
But rising production will make it more difficult for oil exporters to fulfill the Algiers pact to curb output, Morse said. Output will need to be cut by 1 million barrels a day because of higher supply from exempt OPEC members Libya and Nigeria.
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Libya shipped the most oil in more than a year during October, while Nigeria's petroleum minister estimated Nov. 1 that his country is now pumping more than 2 million barrels a day for the first time since the start of 2016.
OPEC's 14 members pumped a record 34.02 million barrels a day in October, according to Bloomberg estimates. Russia boosted oil output to a post-Soviet record of 11.2 million barrels a day, according to the Energy Ministry's CDU-TEK unit.
“The market's also under pressure because of further increases in OPEC and Russia production,” Evans said. “If they agree to reduce production it will be from a very high level.”
Surging U.S. crude stockpiles added to the rout in prices. Inventories rose by a record 14.4 million barrels in the week ended Oct. 28, Energy Information Administration data show.
Money managers' long position in WTI dropped by 28,098 to 296,654 futures and options, the lowest level since July, the CFTC said. Shorts rose 11 percent.
In the Brent market, money managers reduced net longs by 8.1 percent to 346,079 during the week, the lowest since September, according to data from ICE Futures Europe.
In fuel markets, net-bullish bets on gasoline increased 2.8 percent to 41,859 contracts, the highest since March 2015, as futures slipped 1.1 percent in the report week. Wagers on higher ultra low sulfur diesel prices advanced 40 percent to 17,302, the highest since August. Futures declined 3 percent.
“I still think they can make a deal because they know the alternative of abject failure will have a significant price impact,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada
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