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By Bloomberg

Speculators cut their bullish position on oil for the first time in five weeks, just as a drop in supply at the biggest U.S. hub propelled prices to the highest this year.

Hedge funds reduced their net-long position on West Texas Intermediate crude by 3.5 percent in the seven days ended April 28, U.S. Commodity Futures Trading Commission data show. Short holdings rose from a four-month low and long wagers contracted for the first time since March.

Inventories at Cushing, Oklahoma, the delivery point for U.S. oil futures, fell for the first time since November, a sign the worst glut in 85 years may be easing. A record drop in rigs drilling for oil helped spur a 25 percent gain in prices last month, the biggest advance since May 2009.

“There’s healthy skepticism about the rally,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone May 1. “After such a big gain it makes sense to step to the side for a bit.”

Futures advanced $1.80 to $57.06 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. WTI on May 1 reached $59.90, the highest level in intraday trading since Dec. 11. Prices climbed 45 cents, or 0.8 percent, to $59.60 at 8:46 a.m.

Cushing stockpiles slipped 514,000 barrels to 61.7 million as of April 24, the first drop in 21 weeks, Energy Information Administration data showed.

“The drop at Cushing changed the market outlook,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone May 1. “People are getting optimistic that shale production will weaken.”

Drilling Rigs

U.S. drillers have idled 58 percent of the oil rigs that were operating in October, according to Baker Hughes Inc. The count dropped 24 to 679 last week, the lowest level in more than five years. U.S. shale output will decline 57,000 barrels a day in May, the EIA said April 13.

Crude production will average 9.35 million barrels a day this quarter before slipping by about 200,000 barrels in the following three months, the agency forecast April 7.

Saudi Arabia’s military campaign in Yemen also stoked the April rally, increasing concern that supplies from the Middle East may be disrupted. Yemen’s sits along the Bab el-Mandeb strait, the world’s fourth-biggest chokepoint for petroleum shipping, according to the EIA. The alternative route takes oil tankers around southern Africa, extending voyage times.

“Oil at $50 looked like a good buy but that’s not the case now that we’re near $60,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said May 1.

WTI Positions

The net-long position in WTI slipped to 258,131 futures and options. Shorts rose 4.8 percent to 78,247 and longs fell 1.7 percent to 336,378.

In other markets, net bullish bets on gasoline climbed 9.3 percent to 25,669. Futures rose 6 percent to $2.0018 a gallon on the Nymex in the reporting period.

The U.S. average retail price of regular gasoline advanced 0.5 cent to $2.62 a gallon on Sunday, the highest level since December, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Net bearish wagers on U.S. ultra low sulfur diesel decreased 30 percent to 13,614 contracts. The fuel rose 3.4 percent to $1.9166 a gallon.

Net-short wagers on U.S. natural gas rose 24 percent to 126,148, a record in data going back to 2010. The measure includes an index of four contracts adjusted to futures equivalents. Nymex natural gas dropped 2.3 percent to $2.517 per million British thermal units during the report week.

Ample Stockpiles

Ample U.S. crude stockpiles leave the market vulnerable to a sharp move lower, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone May 1.

Inventories nationwide rose 1.91 million barrels to 490.9 million, the highest level in weekly EIA data that started in August 1982. Supplies haven’t been this high since 1930, according to monthly records.

“Inventories could drop 100 million barrels and there would still be too much on hand,” Evans said. “If the flow of buying dries there’s no physical tightness that would limit the downward price move.”