Hedge funds last week boosted their holdings of crude oil futures and options to the highest level in 13 weeks in a bet that Tropical Storm Bonnie would delay imports to states along the Gulf of Mexico, reducing supplies. Oil jumped 6.5 percent in the week ended Aug. 3 as the funds, along with other large speculators, boosted their long positions in New York Mercantile Exchange contracts by 24 percent to 135,833, the most since May 4, a Commodity Futures Trading Commission report Aug. 6 showed. What the funds weren’t betting on were jobs reports showing the economic rebound from the worst recession since the 1930s was losing steam. Prices dropped 2.2 percent in the final three days of last week on a reduced outlook for fuel demand. Oil may drop further this week, according to a Bloomberg News survey. “This is Wall Street at its finest,” said Hamza Khan, an analyst at the Schork Group in Villanova, Pennsylvania. “They knew stocks were going to decrease because the refineries had their supply routes shut down for Tropical Storm Bonnie. Really, the joke was on them.” Crude oil for September delivery fell $1.31 to $80.70 a barrel Aug. 6 on the Nymex. It was the biggest decline since July 27. Hedge funds increased net-long positions, or bets that crude oil will rise, for the fourth straight week, the longest streak since March the CFTC’s weekly Commitments of Traders report showed. Imports Drop Crude-oil imports to the Gulf Coast fell 23 percent in the week ended July 30 from the previous week, the Energy Department reported Aug. 4. That was the biggest drop since September 2008. Crude stocks fell 2.78 million barrels to 358 million barrels, the government said. “The bullish news is they’re buying it and that’s good for prices,” said Tim Evans, an energy analyst at City Futures Perspective in New York. “The bearish news is that it’s becoming more vulnerable with larger long positions.” Oil slipped 1.6 percent Aug. 6 after the Labor Department said private payrolls that exclude government agencies rose by 71,000 in July, less than forecast, after a gain of 31,000 in June that was smaller than previously reported. The department reported Aug. 5 that initial jobless claims increased by 19,000 to 479,000 during the prior week. “They probably weren’t expecting the job numbers to be so bearish this week,” said Khan. “When they started to see these various numbers come in they probably liquidated their positions. We’re probably not going see such a spike in net longs this week.” Crude Oil Survey Crude oil will decline through Aug. 13, according to 28 of 46 analysts polled in a Bloomberg News Survey. It was the most bearish result since July 2009. Twelve respondents, or 26 percent, predicted that futures will increase and six saw little change. Hedge funds more than doubled their bets that heating oil would rise, as government data showed exports of distillate fuel rising in May to the second-highest level ever. Funds increased net-long positions by 16,964, to 29,957 contracts of futures and options, the most since May 4. The September futures contract rose 8.4 percent through Aug. 3 to $2.20 a gallon. Heating oil for September delivery fell 1.8 percent to $2.1472 a gallon Aug. 6 on the exchange. Exports in May of distillate fuel, including heating oil and diesel, were 17 percent higher than a year earlier, the Energy Department said July 29. More cargoes left the country to Mexico, Ecuador and Europe. Distillate Exports Valero Energy Corp. Vice President of Marketing and Supply Joe Gorder said in the company’s second-quarter earnings conference call July 27 that exports from its Gulf Coast refineries remained high to South America as well as Europe. “The Isla refinery is still down,” Gorder said. “Mexico’s demand exceeds its supply, and it continues to import product.” The 335,000-barrel-a-day Isla plant on the island of Curacao shut March 1 after the flow of power, steam and compressed air was halted because of problems at a local utility. Petroleos de Venezuela SA, Venezuela’s state oil company, leases the refinery from the Curacao government. U.S. distillate inventories rose 2.17 million barrels to 169.7 million in the week ended July 30, the highest level since October, and are 25 percent above the period’s five-year average, according to the Energy Department. “Fundamentals show a U.S. market that is still overstocked, particularly on the product side,” said Evans. “This leaves the market vulnerable to downdrafts like the one we saw in May.” To contact the reporter on this story: Paul Burkhardt in New York at pburkhardt@bloomberg.net.

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