(Bloomberg) -- In the lead up to OPEC’s meeting this week, investors were playing a waiting game.

Hedge fund wagers on the direction of crude prices barely budged, and an obscure decision on Friday didn’t do much to dispel the uncertainty. While prices jumped with the adoption of a smaller-than-expected production increase, it’s still unclear how much more supply will be poured into the market, and which countries will be responsible for it.

“This is a market lacking conviction, leadership and any sense of what’s going to happen next,” said Walter Zimmermann, chief technical analyst at ICAP-TA. “If anything, we’re ending the day with more questions than we began the day with.”

After a dramatic week marked by Saudi Arabia drumming up support for a deal and Iran saying there would be none, Saudi Energy Minister Khalid Al-Falih told reporters in Vienna that the group agreed on a “nominal” hike of 1 million barrels a day. The accord left a lot open to interpretation and the official communique didn’t contain the number he announced.

Several ministers said that, in reality, the accord will add a smaller amount of oil to the market -- about 700,000 barrels a day-- because a number of countries are unable to raise their output. With OPEC and its allies collectively pumping much less than agreed in their historic deal to pare out, Friday’s accord may end up being just a mechanism to adjust supplies to those original levels.

“There’s still some uncertainty in the market as far as how everything is going to start to unwind,” said Mark Watkins, who helps oversee $151 billion at U.S. Bank Wealth Management. “Ahead of that, a lot of people were thinking the worst case scenario as far as OPEC’s going to open up the spigots and oil is going to flood the market again.”

Hedge funds reduced their WTI net-long position -- the difference between bets on a price increase and wagers on a drop -- by 0.4 percent to 313,867 futures and options during the week ended June 19, according to the U.S. Commodity Futures Trading Commission. Longs dipped 0.6 percent, while shorts fell 2.1 percent.

Although Saudi Arabia has enough spare capacity to offset losses by other producers, Al-Falih previously acknowledged that such a move isn’t politically palatable for his fellow OPEC members.

OPEC has “been trying to work to move the price of oil up, but in a stable movement,” Watkins said. Going forward, “there doesn’t look to be a flood of oil that’s going to come on to the market. It should happen in a gradual way.”

Some see Friday’s deal as a positive signal for investments.

“The space becomes much more attractive for capital, which is the primary goal of OPEC: To attract capital back to the market. This is a green light for capital to come back into the sector,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC. The new agreement “introduces a measure of flexibility that is necessary in any kind of policy framework to keep us in a price range that is supportive for true capital investment.”


  • The Brent net-long position rose 0.6 percent to 458,449 contracts, the highest level in four weeks, weekly ICE Futures Europe data show.
  • Money managers increased their net-long position on benchmark U.S. gasoline by 2.2 percent and cut their net-bullish position on diesel by 2.1 percent.

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Carlos Caminada, Reg Gale

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