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