A deal between Saudi Arabia and Russia to freeze oil output failed to stem the biggest drop in bullish bets since July.
The agreement reached on February 16 isn't going to revive crude prices, according to Goldman Sachs. Iran said it supported the deal, without saying whether it would temper its own production. A ban on Iran's oil exports was lifted last month when the Persian Gulf country completed the conditions of a nuclear deal with world powers.
"This agreement is not going to do anything in terms of reducing the surplus," said Bart Melek, head of commodity strategy at TD Securities in Toronto. "Iran will probably produce as much oil as it can to regain some market share."
Speculators' long positions in West Texas Intermediate futures and options fell by 5.3 percent during the week ended February 16, according to U.S. Commodity Futures Trading Commission data, the biggest decline in seven months.
West Texas Intermediate crude futures rose 3.9 percent to $29.04 a barrel in the period covered by the report, and traded at $31.65 at 11:10 a.m. Monday.
The Saudi Arabia-Russia deal to fix production at January levels, which also includes Qatar and Venezuela, is the "beginning of a process" that could require "other steps to stabilise and improve the market," Saudi Oil Minister Ali al-Naimi said in Doha after the talks.
Saudi Arabia has resisted making any cuts in output to boost prices, arguing that it would simply be losing market share unless its rivals also agreed to reduce supplies.
Investors will be watching to see if al-Naimi offers any further steps aimed at reducing the global oversupply when he speaks on Tuesday at the IHS CERAWeek conference in Houston.
Saudi Arabia has resisted making any cuts in output to boost prices, arguing that it would simply be losing market share unless its rivals also agreed to reduce supplies. The kingdom produced 10.2 million barrels in January, according to data compiled by Bloomberg. Russia pumped 10.9 million, a post-Soviet record.
While Saudi Arabia and Russia agreed to cap output, the success of the deal will depend on Iran, Iraq and other large exporters taking part, with the participation of Iran "unlikely," Goldman analysts including Jeff Currie said in a note February 17. The bank reiterated its call for prices to remain volatile while being bound to a range in the coming months until inventories stop increasing.
Meanwhile, U.S. oil supplies keep swelling. They climbed to 504.1 million barrels in the week ended February 12, the highest level in 86 years, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, increased to 64.7 million, the most in weekly data going back to 2004.
Speculators' long positions in WTI slipped by 16,146 contracts to 286,238 futures and options in the week ended Feb. 16, CFTC data show. Shorts, or bets that prices will decline, fell 2,828. Net-longs declined 12 percent to 97,169.
In the Brent market, bullish bets increased by 19,541 contracts in the period, according to data from ICE Futures Europe. Speculative bets that prices will rise outnumbered short positions by 284,873 lots, the London-based exchange said in its weekly Commitments of Traders report.
In other markets, net bearish wagers on U.S. ultra low sulfur diesel fell by 2,712, or 12 percent, to 19,445 contracts. Diesel futures climbed 5.3 percent in the period. Net bullish bets on Nymex gasoline rose 70 percent, to 23,943 contracts as futures gained 8 percent.
"Nothing has happened," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "No barrels were removed."