Fears of $20 oil fade away as speculation grows that crude may have already hit bottom

Hedge funds unwound bearish bets at the fastest pace in 10 months as fear of oil sinking to US$20 a barrel faded.

A lot has happened since Goldman Sachs made that forecast a month ago. Some U.S. shale drillers have added too the towel following a year of maintaining supply in the face of plunging prices, saying they’ll pump less in 2016. Saudi Arabia, Russia and other large producers have frozen output and plan to meet later this month to go over further measures to aid prices.

“We may begin to see the real bottom being behind us,” Ed Morse, head of global commodity research at Citigroup, said in a interview Friday with Bloomberg TV. “Eventually we’ll see U.S. supply falling.”

Speculators reduced their short positions in West Texas Intermediate crude by 15 per cent within the week ended March 1, based on U.S. Commodity Futures Trading Commission data. Futures gained 7.9 percent within the report week and also have jumped 40 percent since hitting a 12-year low on Feb. 11. The front-month contract traded at US$37.61 a barrel at 12:11 p.m. Ny time.

U.S. crude production fell for a sixth time in a few days ended Feb. 26 to 9.08 million barrels each day, the minimum level since November 2014, based on the Energy Information Administration.

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Apache Corp. said last month its oil and gas output will fall as much as 11 percent in 2016. Continental Resources Inc. projected a ten per cent cut and Whiting Petroleum Corp. a 15 % reduction.

Members from the Organization of Petroleum Exporting Countries intend to meet with other producers between March 20 and April 1, Russian Energy Minister Alexander Novak said on Russian state television March 4. There hasn’t been your final decision on timing and location, based on Novak.

Saudi Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha they would freeze production, if other producers followed suit, in an effort to tackle the global oversupply.

Many people think that we may have experienced the worst of it.

“Lots of people think that we might have experienced the worst from it,” said Bart Melek, head of commodity strategy at TD Securities in Toronto. “There has been pretty significant declines in U.S. production. There’s hope that soon an OPEC agreement will come.”

The premium of December WTI puts over calls shrank Friday towards the lowest level since Jan. 25, along with a a catalog measuring volatility within the largest oil exchange-traded fund has dropped to the lowest in almost two months.

Speculators’ short positions in WTI fell by 25,639 contracts of futures and options combined to 150,718, the biggest decline since April 21, CFTC data show. Longs, or bets on rising prices, fell by 753. The exodus of bearish bets led to a 24,886-contract jump in the net-long position.

In other markets, net bearish wagers on U.S. ultra low sulfur diesel rose by 2,801 contracts. Diesel futures climbed 7.6 percent in the period. Net bullish bets on Nymex gasoline climbed 5,534 contracts as front-month futures gained 35 %.

Prices climbed even as U.S. crude supplies increased by 10.4 million barrels in the week ended Feb. 26 to 518 million, according to the EIA. That’s the greatest level since 1930.

“The market is ignoring the builds in U.S. supplies,” said Phil Flynn, senior market analyst in the Price Futures Group in Chicago. “The market is starting to understand there will be a production freeze if not a cut. The mood has changed.”

Bloomberg News