Hedge funds regain some of their faith in oil

Published 10.04.2017 22:22
Updated 10.04.2017 23:01

Hedge funds have turned bullish towards crude oil again as international marker prices have steadied above the psychologically important $50 threshold. Hedge funds and other money managers increased their net long position in the three main Brent and WTI futures and options contracts by 54 million barrels in the week to April 4.

The boost in the net long position comes after five consecutive weeks of drawdowns between Feb. 21 and March 28 totalling 309 million barrels.

By April 4, fund managers held an overall long position equivalent to 696 million barrels, according to an analysis of position data published by regulators and exchanges.

The position is well below the recent peak of 951 million barrels reported on Feb. 21 but far above the recent low of 422 million recorded in mid-November before OPEC's production deal.

Hedge fund managers remain overwhelming bullish about the outlook for oil prices. Fund managers' long positions outnumber shorts by a ratio of more than 4:1.

Hedge fund managers' faith in the outlook for oil prices was badly shaken by the sharp sell-off that started on March 8 and lasted through subsequent sessions.

But managers seem to have recaptured some of that confidence after front-month Brent prices found a floor just above $50 per barrel on March 27.

Funds added the equivalent of 30 million barrels of extra long positions in Brent and WTI between March 28 and April 4.

The stabilisation and subsequent rise in prices also prompted a wave of short-covering, with funds cutting short positions by a total of 24 million barrels.

Short positions had previously more than doubled to 241 million barrels on March 28 from 102 million on Feb. 21 in the sixth cycle of short-selling since the start of 2015. But with prices no longer falling, and new buyers emerging, many short position owners decided to take profits, accelerating the upward move in prices.

If hedge funds have shifted to closing out short positions after just five weeks, which seems likely, this will be the briefest and shallowest short-selling cycle since the start of 2015.

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