Oil speculators most bullish in 2 months as Opec calls for $80

Hedge funds slashed their bets on falling oil prices, leaving them the most bullish in two months as the Organization of Petroleum Exporting Countries (Opec) called for a return to $80 crude. Money managers' net-long position in West Texas Intermediate rose by 14,821 contracts to 147,678 futures and options in the week ended September 15, according to data from the Commodity Futures Trading Commission (CFTC). That's the highest level since July 7.

Opec expects crude prices to rise to $80 by 2020 as output falls elsewhere. US production could sink by the most in 27 years in 2016 as the price rout extends a slump in drilling. Speculators closed out short positions two days before the Federal Reserve decided not to raise key US interest rates.

"The market's not as oversupplied as we think it is," David Pursell, a managing director at investment bank Tudor Pickering Holt & Co in Houston, said in a phone interview. "The news out of Opec is more bullish, US production is falling and demand is great right now."

The US benchmark oil contract fell 2.9 per cent in the report week to $44.59 a barrel on the New York Mercantile Exchange.

Global benchmark Brent crude oil rose $1.28 to a high of $48.75 a barrel before easing back to trade around $48.30 by 1350 GMT US light crude oil futures were up $1.15 a barrel at $45.83. Opec expects crude prices to rise by about $5 a year through 2020. Production from nations outside the group will be 58.2 million barrels a day in 2017, one million lower than previously forecast, according to an internal report. The impact of low prices is "most apparent on tight oil, which is more price reactive than other liquids sources," according to the report. US output could sink by 400,000 barrels a day next year after a prolonged period of low prices forced producers to idle more than half the rigs seeking oil, the International Energy Agency said in a monthly report. That would be the largest one-year decline since 1989, according to US government data.

"There is quite a discernible shift in sentiment because production declines are quite high," Amrita Sen, chief oil market analyst for Energy Aspects Ltd in London, said by phone. "There's a realisation that US production is rolling over."

Money managers reduced short positions, or bets that prices will fall, by 14,569 contracts, CFTC data showed. Long positions, or bets on rising prices, increased by 252.

In other markets, net bullish bets on Nymex gasoline rose 3.5 per cent to 16,562, CFTC data show. Futures fell 4.9 per cent to $1.3329 a gallon. Net bearish wagers on US ultra low sulphur diesel expanded by 12 per cent to 28,057 contracts. Diesel futures dropped 5.9 per cent to $1.50 a gallon.

The Fed decided not to increase rates for the first time in almost a decade as Fed Chair Janet Yellen said slower growth in China, the second biggest oil-consuming country after the US, contributed to volatility across markets and that overall financial conditions have tightened.

"By Tuesday, money managers were closing out their short positions because of the expectation that the Fed would leave rates unchanged, which they worried would mean the dollar stays weaker and commodity prices rise," Andy Lipow, president of Lipow Oil Associates LLC, said by phone from Houston.