Hedge Funds Exit Bull Bets on Crude Oil

Hedge Funds Exit Bull Bets on Crude Oil

Hedge Funds Exit Bull Bets on Crude Oil

$OIL, $USO

Hedge funds’ net Long position in Crude Oil has fallen by nearly 100-M bbls over the last 2 weeks

Hedge funds tempered their Bullishness towards the petroleum complex during the 1st week of September, according to positioning data from regulators and exchanges.

Hedge funds and other money managers cut their combined net Long position in the 3 major Brent and WTI futures and options contracts by 80-M bbls in the week ending 6 September.

The decline was led by a big increase in Short positions, which rose by 56-M bbs, especially in the WTI contracts, where Short positions increased by 39-M bbls.

There was a more modest reduction in Long positions, which fell 23-M bbls, with almost all the Long liquidation in Brent, where Long positions were down 20-M bbls.

Overall, the hedge funds’ net Long position in Crude Oil has fallen by nearly 100-M bbls over the 2 most recent weeks, partially reversing a build of 287-M bbls over the 3 weeks before that.

The partial reversal reflects profit taking after Brent prices surged by almost $10/barrel, more than 23%, in the 1st part of August as some of the previous record Short position was covered.

It also seems to reflect fresh Short-selling in anticipation that Long liquidation would trigger a new round of price falls.

The more cautious hedge fund position on crude was echoed in positions on US gasoline blendstock and heating oil.

Hedge funds cut their net Long position in gasoline by 5-M bbls and heating oil by 12-M bbls in the week ending 6 September.

Even after the recent adjustments, hedge fund positions across the entire complex of crude, gasoline and heating oil are still much more Bullish than they were at the start of August.

Recent Long liquidation and Short sales may be just a minor correction after the unprecedented Short-covering rally last month.

But with Long positions still relatively high and Short positions relatively low there is potentially scope for the correction to continue.

Since the start of Y 2015, hedge funds have accumulated and then liquidated Short positions in 4 distinct cycles that have closely mirrored the fall and then rise of Crude Oil prices.

The critical question is the latest bout of Short selling marking the start of a new cycle, the 5th, or the continuation of cycle #4.

HeffX-LTN Analysis for OIL: Overall Short Intermediate Long
Neutral (-0.22) Bearish (-0.34) Neutral (-0.23) Neutral (-0.08)
HeffX-LTN Analysis for USO: Overall Short Intermediate Long
Neutral (-0.15) Neutral (-0.24) Neutral (-0.17) Neutral (-0.04)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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