Investors Bet On Oil Price Rally Regardless Of Vienna Outcome

Statistical balances are said to suggest conditions have vastly improved.

Vienna be damned: that seems to be the collective message investors are sending to the participants of the impending oil production cut talks as they escalate their bets that prices will rally regardless of the success of any cap deal, Reuters reports.

U.S. Commodity Futures Trading Commission (CFTC) and InterContinental Exchange data reveals that money managers have bought nearly 218,000 lots of crude futures and options contracts in October, the largest monthly rise to date.

The total net holdings for U.S. and Brent crude oil futures and options now stands at nearly 688,000 lots, or about 688 million barrels of oil, and double the amount since Saudi Arabia in August suggested the possibility of an output agreement between the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

The impetus is reportedly falling stockpiles, and Kevin Norrish, commodities analyst for Barclays, said in a note, "While much of the oil market paints a picture of a commodity struggling under the weight of a huge surplus, statistical balances suggest that conditions have improved markedly.

"If OPEC comes up with a meaningful cut to output in November and the northern hemisphere has a reasonably cold winter, then in our view, crude oil price risk will return very much to the upside."

Reuters speculates that the options market "seems to suggest investors are betting against any deal when OPEC members meet in Vienna in late November," and that "Speculators hold nearly 10 percent more sell options than buy options for contracts expiring after the meeting on November 30, but this belies a more bullish picture."

Meanwhile, Pedro Joaquin Coldwell, energy minister for Mexico, said his country will attend a technical meeting of experts held by OPEC in Vienna this weekend, and Bijan Zanganeh, oil minister for Iran – which is famously opposed to any cutbacks -  says he may meet with Russian energy minister Alexander Novac on the sidelines of the November conference.

But critics are increasingly weary of promised talks and meetings that too often lead to discord instead of agreement, and consensus is growing that the Vienna summit as well as OPEC itself doesn't mean much in the grand scheme of things: this is the view of Gaurav Sodhi, senior analyst at Intelligent Investor, who, in addition to calling OPEC "A dying organization with limited relevance", recently pointed out that "OPEC says it will cut production but doesn't give any details of where the burden of supply cuts will come from; they can't even in fact agree on how much is being produced by each country."