Oil ends below $90 on Venezuela sanctions relief report, lack of Mideast catalyst 

Investing.com - Crude fell, settling below $90 a barrel Monday, amid signs the global oil supply situation may improve on reports that US sanctions on Venezuela could ease if Caracas agrees to an election date — one of Washington’s prerequisites for normalizing trade and other relations with the South American country.

Crude prices were also pressured by a lack of fresh upward catalysts from the Israel-Hamas war that threw a lifeline to oil bulls last week. 

Also weighing was data showing hedge funds and other big players in oil dumping their bullish holdings at an alarming rate last week despite Friday’s outsized rally.

New York-traded West Texas Intermediate, or WTI, crude for delivery in November settled at $86.66 per barrel, down $1.03, or 1.2%. Last week, the US crude benchmark finished up almost 6%, with most, if not all, of that coming from a run-up Friday.

London-traded Brent crude for the most-active December contract settled at $89.65, down $1.24, or 1.4%. Last week, the global crude benchmark gained 7.5%.

Venezuela situation new shoe to drop on oil bulls

The US and Venezuelan governments were getting ready to sign a pact in Barbados as early as on Tuesday to ease U.S. sanctions on Venezuela's oil industry in return for a competitive, monitored presidential election in Venezuela next year, according to media reports. 

Easing sanctions on Venezuela's oil industry could result in increased oil supply.

Traders were also optimistic that the war between Israel and Hamas would remain confined to Gaza, without dragging in Iran — a tacit supporter of the Palestinian Islamist group.

"It's more of the same on Monday in terms of the conflict in the Middle East being contained from affecting crude oil supplies," said John Kilduff, partner at New York-based energy hedge fund Again Capital.

Hedge funds bailed out of oil during week ended Oct 10 

Hedge funds and other money managers had, meanwhile, sold the equivalent of 140 million barrels in the six most important petroleum futures and options contracts over the week to Oct. 10, before another crude price spike on Oct. 13.

“Portfolio investors have dumped positions in petroleum at some of the fastest rates in the last decade in the most recent week as the bullish sentiment that built up after OPEC⁺ production cuts evaporated,” Reuters columnist John Kemp said.

The sales volume was the 14th largest in 552 weeks since March 2013, based on records filed with ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Funds slashed their total positions by 197 million barrels over the most recent three weeks, reversing about half of the 398 million barrels purchased over the previous 12 weeks since the end of June.

As a result, the combined position was reduced to 483 million barrels (30th percentile for all weeks since 2013) down from 680 million barrels (64th percentile) on Sept. 19.

The ratio of bullish long positions to bearish shorts was cut to 3.86:1 (45th percentile) from 6.02:1 (81st percentile) as the bullish froth that had accumulated was blown away.

The dump came as they reacted negatively to the end of the squeeze on inventories around the NYMEX delivery point, oil prices breaking lower, rising borrowing costs, and the growing threat of conflict in the Middle East.

That seemed to contradict the notion among oil bulls that all investors wanted was to pile further and further on the oil rally without a care for risk.

(Peter Nurse and Ambar Warrick contributed to this article)