Oil price at 2016-high sends punters running scared of short bets

Brightening up: Crude oil reached as high as $39.50 a barrel

Tim Exton/AFP/Getty Images

7 March 2016

Speculators are rapidly backing away from bets on tumbling oil prices as the cost of crude hits its highest level this year, it has emerged.

Rising demand, buoyed by strong US jobs figures as well a big drop in the number of active drilling rigs across the Pond, helped push the price of Brent crude close to $40 a barrel.

It rose as high as $39.50 at one stage. Brent has increased for five days running in the longest winning streak since November.

Although well below their June 2014 highs of $114 a barrel, oil prices have now seen three successive weeks of gains in the commodity’s best run since last May.

The price rise, as well as the recent weakness of the pound against the dollar, is likely to feed into rising prices at the petrol pump for drivers.

Hedge funds have drastically cut back their bets on a falling oil price just a month after Goldman Sachs said the price could fall to $20 a barrel, according to the latest figures from the Commodity Futures Trading Commission.

The number of short contracts — bets on a falling price — fell by 25,639 to 150,718, marking the biggest decline since April last year, the CFTC’s figures showed.

CMC Markets analyst Rick Spooner said: “We’re starting to see US production levels decline and if that happens it could easily drive momentum in oil a bit further.”

Investment bank Morgan Stanley, however, highlighted factors fuelling a lingering global supply glut, such as Iranian crude coming onto the market, adding that prices could still drop back.

“Upside should be limited by bloated global inventories... we worry that this latest oil bounce shares many features of [last spring’s] false oil rally,” the bank said.

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