(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: tmsnrt.rs/2xKUtGV
By John Kemp
LONDON, Sept 18 (Reuters) - Hedge funds continue to wager on a shortage of refined fuels driving prices higher, even as U.S. refineries gradually restart operations in the aftermath of Hurricane Harvey.
Hurricane-related flooding caused extensive disruption to the major U.S. refining centre along the Gulf of Mexico in the first half of September.
But most Gulf Coast refineries have begun to restart and should be fully operational within the next few days, with only limited outages lingering for longer.
And exceptionally high refining margins are encouraging refineries in the rest of the world to maximise output to cover the supply shortfall.
The post-hurricane bet on fuel shortages therefore risks becoming a crowded trade with a sharp price reversal when portfolio managers try to take some profits and exit.
Hedge funds and other money managers raised their net long position in U.S. gasoline futures and options to 69 million barrels in the week to Sept. 12, the highest level since May 2014.
Sentiment has experienced a sea change since mid-June, when portfolio managers were running an overall short position of 21 million barrels (tmsnrt.rs/2xKUtGV).
Hedge funds also lifted their net long position in U.S. heating oil by 5 million barrels to 46 million barrels last week, the highest since February 2013, according to the latest data from regulators and exchanges.
And fund managers boosted their net long position in European gasoil by 1.2 million tonnes to a record 17 million tonnes.
Hedge fund positioning in all fuels appears very stretched with long positions outnumbering shorts by 19:1 in gasoil, 4.4:1 in gasoline and 3.5:1 in heating oil.
In contrast, positioning in the main crude oil contracts linked to Brent currently appears much less lopsided and there is an unusually low ratio in WTI.
The likely outcome is a sharp narrowing of gasoline and distillate cracks when the post-hurricane trades unwind, with crude and especially WTI prices rising while gasoline and diesel come under pressure. (Editing by Edmund Blair)