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COLUMN-Hedge funds square up most of their former record bullish position in oil: Kemp
April 3, 2017 / 12:48 PM / 6 months ago

COLUMN-Hedge funds square up most of their former record bullish position in oil: Kemp

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Chart 1: tmsnrt.rs/2nvXl0M

* Chart 2: tmsnrt.rs/2nvXjWI

* Chart 3: tmsnrt.rs/2nvHjUK

* Chart 4: tmsnrt.rs/2n3ZlCa

By John Kemp

LONDON, April 3 (Reuters) - Hedge funds have continued liquidating their large bullish position in crude amid doubts about the pace and timing of any rebalancing in the oil market.

Hedge funds’ net position in Brent and WTI has been cut to 642 million barrels, down from a record 951 million barrels on Feb. 21 (tmsnrt.rs/2nvXl0M).

The spread of risks between further long liquidation and new short covering now looks more balanced than at any point since OPEC’s production deal was announced at the end of November.

Hedge funds and other money managers cut their net long position in the three major futures and options contracts linked to Brent and WTI by a further 41 million barrels in the week to March 28.

Fund managers have cut their net long position for five consecutive weeks by the equivalent of 309 million barrels, according to an analysis of records published by exchanges and regulators (tmsnrt.rs/2nvXjWI).

Managers have reversed more than half of the extra 529 million barrels of net long positions accumulated between the middle of November and the middle of February.

Hedge funds have cut long positions by 170 million barrels over the last five weeks while adding 139 million barrels of extra short ones.

The result is that the ratio of long to short positions in Brent and WTI has fallen to 3.7:1, down from a recent high of 10.3:1 on Feb. 21 (tmsnrt.rs/2nvHjUK).

The build up of a record concentration of hedge fund long positions prior to Feb. 21 became a major downside risk to oil prices in January and February (“Hedge fund positioning in oil looks stretched”, Reuters, Feb. 7).

The liquidation of long positions and establishment of fresh shorts likely contributed to the sharp drop in oil prices starting on March 8.

But by the end of March 28, the previous congestion of hedge fund long positions in the oil market seems to have dissipated.

The squaring up of positions coincided with an easing of persistent selling pressure, with Brent and WTI prices staging a modest recovery from March 28 through March 31 (tmsnrt.rs/2n3ZlCa).

With most but not all long positions liquidated, and a moderate number of short positions already in the market, the outlook for oil prices now appears more balanced than at any time in the last three months. (Editing by Susan Thomas)

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