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Petroleum industry

Oil Prices Surge as Hedge Funds Cover Short Positions and OPEC's Potential Production Cut

Strategic Insights

— 2 min read

Crude oil futures reached a 13-week high as hedge funds scrambled to cover their short positions, driving prices up by 6% to over $51 per barrel on the New York Mercantile Exchange (Nymex). The price surge was also fueled by colder-than-average weather in Europe and the US Northeast, as well as bullish comments from some OPEC members. Analysts expect the heating oil market in the US Northeast to show huge draws in the latest inventory data, which could lead to continued buying interest in the next few days.

Key Takeaways:

  • Hedge funds bidding up crude futures to cover short positions led to a 6% increase in price to over $51 per barrel on the New York Mercantile Exchange (Nymex).
  • Nymex light, sweet crude for March delivery closed up $2.80 at $51.15 per barrel, while April crude deliveries settled up $2.41 at $51.42/bbl.
  • The market for oil and products got tremendous support from colder-than-average weather in Europe and the US Northeast, as well as bullish comments by some OPEC members.
  • Analyst Phil Flynn at Alaron Trading stated that OPEC may cut back on production because the Saudis want to keep inventories tight and the weak dollar will make them do that.
  • Saudi Arabian Oil Minister Ali Naimi said he was happy with current crude oil stocks and indicated that OPEC may not let inventories build above current levels.
  • Analyst Tim Evans at IFR Energy noted that OPEC supply for the second quarter has to meet demand at 27.7 million b/d, which means they want second-quarter production to be less than January by 1.45 million b/d.
  • The impact of the current cold spell on the heating oil market of the US Northeast will likely be seen in the latest inventory data due on Wednesday, with most traders expecting huge draws.
  • A draw for crude stocks would likely spur continued buying interest in the next few days.

Statistics:

  • Crude oil futures rose by 6% to over $51 per barrel on the New York Mercantile Exchange (Nymex).
  • Nymex light, sweet crude for March delivery closed up $2.80 at $51.15 per barrel.
  • April crude deliveries settled up $2.41 at $51.42/bbl.
  • Nymex heating oil for March was up 9.09 cents at $1.4402/gallon.
  • Brent crude oil finished $2.28 higher at $48.62/bbl on the International Petroleum Exchange.

Sources:

  • "OPEC Supply for Second Quarter Has to Meet Demand at 27.7 Million B/D" by Tim Evans at IFR Energy (no date)
  • "OPEC Sees Demand Higher Than Originally Expected" by George Orwel, New York (no date)
  • "Oil Prices Surge as Hedge Funds Cover Short Positions" by unnamed floor trader (no date)
  • "The Perception is that OPEC Will Cut Back on Production" by Phil Flynn at Alaron Trading (no date)
  • "Saudi Arabian Oil Minister Says OPEC Will Not Let Inventories Build Above Current Levels" by Ali Naimi (no date)

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