(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2n6ahxr
* Chart 2: tmsnrt.rs/2n0kxpj
* Chart 3: tmsnrt.rs/2mM2e6q
* Chart 4: tmsnrt.rs/2mnlXIG
* Chart 5: tmsnrt.rs/2mQyu93
By John Kemp
LONDON, March 20 Hedge funds cut their bullish
bets on oil by the largest amount on record in the week to March
14, according to the latest data published by regulators and
Hedge funds and other money managers cut their combined net
long position in the three main futures and options contracts
linked to Brent and WTI by a record 153 million barrels in just
seven days (tmsnrt.rs/2n6ahxr).
The reduction in the net long position coincided with the
sharp fall in oil prices, which started on March 8 and continued
through March 14.
The adjustment was split almost evenly between the
liquidation of old long positions and the establishment of new
Hedge fund managers reduced long positions by 84 million
barrels while short positions were increased by 70 million
Fund managers' net long position has been reduced by a
cumulative total of 230 million barrels over the last three
weeks from a peak of 951 million barrels on Feb. 21 (tmsnrt.rs/2n0kxpj).
Most fund managers are still bullish about the outlook for
oil but that bias is less pronounced than it was a month ago.
Hedge fund long positions outnumber short positions by a
ratio of 4.4:1, but that come down from a ratio of 10.3:1 on
Feb. 21 (tmsnrt.rs/2mM2e6q).
Before the recent sell off, hedge fund managers had boosted
their net long position in Brent and WTI by 530 million barrels
between the middle of November and the middle of February.
Funds amassed a record 1.05 billion barrels of long
positions, while short positions were cut to just 102 million
barrels, the smallest number since oil prices started slumping
But large concentrations of hedge fund positions, and an
imbalance between the long and short sides of the market, often
precede a sharp reversal in oil prices.
A sharp selloff in oil prices had been widely anticipated
for some time before it actually occurred ("Hedge fund
positioning in oil looks stretched", Reuters, Feb. 7).
Crude oil prices and hedge fund positions seem to have
reached a turning point about two weeks before the sharp drop in
oil prices on March 8.
Brent spot prices, calendar spreads, and the spread between
Brent and Oman futures all reached a turning point on, or
shortly after, Feb. 21 (tmsnrt.rs/2mnlXIG and
The first new hedge fund short positions began to emerge
after Feb. 21, with 25 million barrels of Brent and WTI short
positions added in the week to Feb. 28.
Funds added another 17 million barrels of short positions in
the week to Mar 7, then an extra 70 million in the week to March
The selloff in Brent and WTI prices, which was barely
perceptible at first, developed a momentum of its own and turned
into an avalanche on March 8.
Accelerating liquidation of long positions, emergence of new
short positions, and a sudden drop in prices are all hallmarks
of a trade that had become crowded, culminating in a rush for
The subsequent reduction in the hedge funds' net long
position and sharp fall in prices has removed much of the
short-term positioning risk that had been hanging over the oil
market for the last two months.
Now that the predicted rush for the exits has occurred, and
some of the froth has blown off the market, the outlook for oil
prices is looking much more balanced than a few weeks ago.
(Editing by Louise Heavens)