May 31 (Bloomberg) -- Hedge funds sold gasoline at the fastest pace since October 2006, dumping 57 percent of their bets on concern Europe’s debt crisis will hurt energy demand.
Speculative net-long positions in gasoline futures and options on the New York Mercantile Exchange tumbled to 14,228 in the week ended May 25, the lowest level since February 2007, according to the Commodity Futures Trading Commission’s Commitments of Traders Report on May 28. Bullish bets are down 80 percent since setting a record 70,742 on May 4.
“Coming into the month of May the market was heavily skewed with record long positions that exhausted the flow of buying,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We’re now much less vulnerable to a drop in prices and are in a good position to see prices rise. The hedge fund community is sitting on the sidelines.”
Gasoline fell 16 percent in May on concern the sovereign debt crisis in Greece will spread, undermining the recovery from the worst recession since World War II. Supplies of the motor fuel are 5.8 percent above the five-year average, and imports jumped 32 percent in the week ended May 21.
About 28 million people are on road trips during the U.S. Memorial Day holiday, a jump of 5.8 percent from a year earlier and the first increase since 2005, according to motoring club AAA, which calculates the period over five days ending today.
Selling Crude
“The bulls had to throw in the towel,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Commodity funds purchased gasoline in April and early May on expectations that a growing U.S. economy would lead to increasing demand. Concerns about the Greece crisis has spread to the markets and changed these assumptions.”
Hedge funds, commodity trading advisers and commodity pool operators, classified as managed money by the CFTC, decreased net-long positions in crude oil 17 percent to 74,236, the lowest level since July. Wagers that prices will climb have tumbled 53 percent in three weeks.
Crude oil dropped 14 percent through May 25 from a 19-month high of $87.15 a barrel May 3. Oil for July delivery fell 58 cents, or 0.8 percent, to $73.97 a barrel May 28 on the Nymex, capping the worst month since December 2008.
“This shouldn’t be a surprise given the recent activity in the financial markets,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “People are moving money around in an attempt to free up capital.”
Supplies of oil and all petroleum-based fuels jumped to 1.82 billion barrels in the week ended May 21, the highest stockpiles on a seasonal basis based on Energy Department data back to 1990. Inventories of crude oil surged 2.46 million barrels to 365.1 million. It was the 16th gain in 17 weeks.
Refinery Output
Refineries have increased production this year as the profit from processing oil into fuels has climbed. The margin, or crack spread, for processing three barrels of crude into two of gasoline and one of heating oil surged to $16.909 a barrel on May 13, the highest level since February 2009, based on futures prices. The spread narrowed to $11.369 May 25.
“Refinery crack spreads have been pretty good, encouraging gasoline production,” Evans said. “Supplies are ample and we’ve seen an end of the euro effect. The strong euro, weak dollar relationship which supported prices has gone.”
The euro lost 14 percent against the dollar this year.
In other markets, hedge funds, commodity trading advisers and commodity pool operators decreased bullish bets on heating oil 38 percent to 10,707 contracts. Heating oil futures for June delivery fell 8.98 cents, or 4.6 percent, to $1.8717 a gallon in New York during the week ended May 25.
Net-short positions in natural gas grew by 35 percent to 77,121 lots of futures and options on Nymex. Natural gas for July delivery advanced 4.7 cents, or 1.1 percent, to $4.341 per million British thermal units in New York on May 28, after falling to $4.051 May 25.
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