(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2msPIv4
* Chart 2: tmsnrt.rs/2meyam3
* Chart 3: tmsnrt.rs/2megwP9
By John Kemp
LONDON, March 6 Hedge funds have trimmed their
bullish position in crude oil by the largest amount since OPEC
announced its decision to cut output in November.
Hedge funds and other money managers cut their combined net
long position in the three main Brent and WTI futures and
options contracts by 61 million barrels in the week to Feb. 28.
The reduction was the largest since the week ending Nov. 8,
according to an analysis of positioning data published by
regulators and exchanges (tmsnrt.rs/2msPIv4).
But the decline comes after fund managers doubled their net
long position from 425 million barrels on Nov. 8 to 951 million
barrels on Feb. 21 (tmsnrt.rs/2meyam3).
Even after the reduction in long positions and increase in
shorts in the week ending on Feb. 28, the overall long position
was still the third-highest ever.
Hedge fund managers remain overwhelming bullish about the
outlook for prices with long positions still outnumbering short
positions by a ratio of nearly 8:1 (tmsnrt.rs/2megwP9).
The accumulation of long positions may have helped
accelerate the rise in Brent prices to $55 per barrel following
the OPEC and non-OPEC accords in November and December.
Oil prices have been closely correlated with the
accumulation and liquidation of hedge fund positions since the
start of 2015.
Since Dec. 12, however, the rally has stalled, with no
further rise in prices, despite an increase of 220 million
barrels in the hedge funds' net long position since then.
Commentators are divided over whether the large hedge fund
long position in crude has become a crowded trade, and, if so,
whether it signals a sharp reversal is imminent.
Bullish hedge fund managers point to strong compliance by
OPEC, renewed interest among investors in commodities as an
asset class, a cyclical upswing, and the comparatively low level
of oil prices.
Fundamentals and positioning could both help push prices
higher as oil stocks fall and institutional investors channel
more money to specialised commodity hedge funds.
Bears, of whom there are few among fund managers, but more
in other parts of the market, note the lopsided positioning of
the hedge fund community is itself a source of downside risk.
Large concentrations of long or short positions have often
preceded a sharp price reversal when funds attempt to take some
of their profits.
The lack of further price gains could also prompt some
momentum-following hedge funds to cut their exposure if they
conclude the post-OPEC rally is over.
(Editing by David Evans)