(Repeats with no changes to text. John Kemp is a Reuters market
analyst. The views expressed are his own)
* Chart 1: tmsnrt.rs/2pqzvW4
* Chart 2: tmsnrt.rs/2pT4DAe
* Chart 3: tmsnrt.rs/2pcpU93
* Chart 4: tmsnrt.rs/2qSg88G
* Chart 5: tmsnrt.rs/2qStiCs
By John Kemp
LONDON, May 8 Hedge funds and other money
managers were turning increasingly bearish towards oil even
before prices plunged on Thursday.
Hedge funds cut their net long position in the three main
futures and options contracts linked to Brent and WTI by 97
million barrels in the week to May 2 (tmsnrt.rs/2pqzvW4).
Bullish long positions were trimmed by 31 million barrels
while bearish short positions increased by 65 million barrels
according to data published by regulators and exchanges.
Hedge funds reduced their net long position by a combined
236 million barrels over the two weeks between April 18 and May
Fund managers now have the smallest net long position in
crude futures and options since OPEC announced its
production-cutting deal on Nov. 30.
Fund managers hold just three long positions for every one
short position, down from a ratio of almost 6:1 on April 18 and
a recent high of 10:1 on Feb. 21 (tmsnrt.rs/2pcpU93).
The ratio was also the lowest since the OPEC deal was
announced and illustrates the loss of confidence in the deal’s
effectiveness in draining global inventories.
Bearishness is not confined to crude. Fund managers have
also turned increasingly negative on the outlook for the price
of refined fuels given the high level of stockpiles in the
Hedge funds cut their net long position in NYMEX gasoline by
24 million barrels in the week to May 2 and are now running a
small net short position of 3 million barrels for the first time
since August 2016 (tmsnrt.rs/2qSg88G).
Hedge funds also cut their net long position in NYMEX
heating oil by 26 million barrels and are now net short by
almost 1 million barrels, the first short position since
November 2016 (tmsnrt.rs/2qStiCs).
The liquidation of hedge fund positions followed by a sharp
drop in oil prices is consistent with empirical and theoretical
work on price dynamics.
Significant liquidation often starts before a sharp drop in
oil prices (“Why stock markets crash: critical events in complex
financial systems”, Sornette, 2003).
The initial liquidation is orderly but accelerates as more
and more position owners rush for the exit at the same time
(“Predatory trading and crowded exits”, Clunie, 2010).
Pierre Andurand, one of the most prominent bullish hedge
fund managers in oil, reportedly liquidated his last remaining
long positions during the final week of April, before the price
rout on May 4 (“Oil bull Andurand closes bet on rally”, Reuters,
Given the further sharp decline in oil prices it is very
likely hedge fund managers have cut their net long position even
more since May 2.
The elimination of so many long positions has left the oil
derivatives market looking more balanced than at any time since
November, which could ease some of the downward pressure on
And short positioning has also increased to a relatively
high level of 263 million barrels across Brent and WTI which
leaves the market vulnerable to a short-covering rally.
Overall, hedge fund positioning in oil now appears neutral.
What happens next, whether the funds turn bullish again or
become more bearish, depends largely on what happens to oil
inventories over the summer.
(Editing by Edmund Blair)