June 12, 2018 / 1:22 PM / in 4 months

COLUMN-Oil prices stall as hedge funds take profits: Kemp

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

* Chartbook: tmsnrt.rs/2JD9EEe

By John Kemp

LONDON, June 12 (Reuters) - Investors continue to reduce their bullish position in crude oil futures and options, after a blistering rally over the last year, but now the profit-taking has spread to refined fuels such as gasoline and heating oil.

Hedge funds and other money managers cut their net long position in the six most important futures and options contracts linked to petroleum prices by 72 million barrels in the week to June 5, according to data from regulators and exchanges.

Funds cut their net long positions in Brent (-14 million barrels), NYMEX and ICE WTI (-19 million barrels), U.S. gasoline (-17 million), U.S. heating oil (-12 million) and European gasoil (-10 million).

Portfolio managers have trimmed their combined net long in petroleum to 1.113 billion barrels, down from a recent high of 1.411 billion on April 17 and a record 1.484 billion on Jan. 23.

Heavy liquidation has seen the combined position cut by 298 million barrels over the last seven weeks, with most of the reduction coming from crude, where net length has been reduced by 302 million barrels.

But in the two most recent weeks the liquidation has spread to gasoline, heating oil and gasoil, reflecting broader doubts about the sustainability of the rally (tmsnrt.rs/2JD9EEe).

Oil consumption growth has been strong and the combination of OPEC output restraint and involuntary production losses from Venezuela and other countries has pushed the market into deficit this year.

However, with benchmark crude prices up by almost 70 percent over the last 12 months, and now apparently stalling, many fund managers appear to have decided now is a good time to realise some profits.

Most of the reduction in net length has come from the liquidation of long positions (-232 million barrels) rather than the creation of fresh short positions (+66 million barrels) confirming profit-taking is the main motive.

Indeed, total short positions remain very low at just 175 million barrels across all six major contracts.

Fund managers remain overwhelmingly bullish about the outlook for oil, with long positions outnumbering short ones by a ratio of more than 7:1.

They are just a little bit less bullish than in the middle of April, when the ratio was almost 14:1.

Related columns:

- Over-extended oil prices were primed for a fall, Reuters, May 30

- Oil prices tumble as hedge funds quit crude, Reuters, May 29

- Hedge funds exit crude but stay bullish on fuels, Reuters, May 21

- Hedge funds take profits after oil rally, Reuters, May 15 (Editing by Edmund Blair)

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