(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2hQR5PM
* Chart 2: tmsnrt.rs/2h2X9rk
* Chart 3: tmsnrt.rs/2h347fZ
* Chart 4: tmsnrt.rs/2hQVBxm
By John Kemp
LONDON, Dec 19 Hedge funds have amassed a record
bullish position in crude oil in anticipation OPEC and non-OPEC
oil producers will succeed in rebalancing the market and
reducing excess stocks next year.
Fund managers accumulated a net long position equivalent to
796 million barrels in the three main futures and options
contracts linked to Brent and West Texas Intermediate by Dec. 13
The net position has almost doubled from a low of 422
million barrels four weeks earlier, according to an analysis of
data from regulators and exchanges.
Hedge funds raised the number of bullish long positions
betting on a rise in oil prices by 148 million barrels in the
course of four weeks.
Over the same period, the number of bearish short positions
betting on a price fall has been cut by 226 million barrels.
Long positions hit a record of 923 million barrels, while
short positions were at the lowest level in six months.
Since mid-November, Saudi Arabia and other producers have
engineered the biggest turnaround in oil market sentiment for at
least a quarter of a century.
Promised production cuts totalling almost 1.2 million
barrels per day (bpd) by the Organization of the Petroleum
Exporting Countries and 560,000 bpd by non-OPEC producers have
transformed traders' views.
Formerly bearish funds with short positions have been
brutally squeezed and forced to close out by the sharp rally in
In their place, bullish fund managers have accepted the
argument that OPEC and its rivals will accelerate oil market
rebalancing by freezing or cutting output from January 2017.
TIME TO DELIVER
Doubts about the effectiveness of the output curbs, cheating
and the pace of rebalancing have been suppressed, at least for
the time being.
However, the scale of the hedge funds' long positions and
the lack of short positions has emerged as a risk factor in its
The balance of risks in the oil market has shifted to the
downside from a hedge-fund positioning perspective.
There are no more short positions to squeeze, which removes
one important source of upward pressure on oil prices. (tmsnrt.rs/2h2X9rk)
Fund managers have closed out all the short positions that
were established between mid-October and mid-November. (tmsnrt.rs/2h347fZ)
At the same time, the concentration of so many hedge-fund
long positions poses a downside risk to prices if the rally
should stall and fund managers try to lock in some profits by
liquidating part of their holdings.
Fundamentals may continue to push oil prices higher, but the
concentration of long positions will overhang any further gains.
OPEC and non-OPEC producers have driven doubters to the
sidelines while convincing most fund managers they can deliver
enough cuts to speed up rebalancing.
But so far OPEC and its rivals have been raising rather than
lowering their output before the curbs are due to start. (tmsnrt.rs/2hQVBxm)
Now the challenge is to deliver enough cuts to justify that
confidence and validate the long positions, or risk a correction
(Editing by Dale Hudson)