[NEW YORK] Hedge funds and other big speculators in oil have cut their bullish wagers on US crude to December lows, data showed on Friday, signaling the possibility of more pain for oil prices after last month's rebound.
US West Intermediate (WTI) crude has risen nearly 15 per cent since the end of January while the global benchmark for crude, Brent, has gained double that. Oil prices had fallen 60 per cent over the seven previous months on fears of a glut.
The latest data from the US Commodity Futures Trading Commission shows the net long position in WTI held by money managers, including hedge funds and speculators, dropping by 187,086 contracts in the week through March 3 That was the lowest in three months, Reuters charts show.
"This is proof that hedge funds are turning bearish on oil again after the recent rallies. WTI could get crushed first, and the sentiment could carry through to Brent," said Phil Flynn, analyst at the Price Futures Group in Chicago.
WTI closed slightly lower on Friday for a third straight week of losses. Brent tumbled 4 per cent, punctuating the sharpest weekly drop in two months. A surge in the dollar and fears of a US rate hike primarily drove the selling, outweighing supportive factors such as falling Libyan and Iraqi crude output.
While market bulls are likely to attempt a retest of highs above US$50 for WTI next week, they may be hindered by continuous growth in US oil supplies. Inventories rose by over 10 million barrels last week, more than double expectations, to an eighth straight week of record highs.
"If the bulls don't push hard enough next week, the market could tank if we get another huge storage build," Mr Flynn said.
Tim Evans, futures specialist at Citi Futures in New York, partly attributed this week's drop in WTI net longs to sales of U.S. crude in favor of Brent.
Brent's premium was at around US$10 a barrel at Friday's close, and some playing the spread between the two are hoping it will widen beyond last Friday's 13-month highs of US$13 a barrel.
"I suspect that this was really a market rotation - cutting back on WTI positions and taking on more length in Brent," Mr Evans said.
But money managers could also viewing record high US inventories as the "most visible downside risk in the wider petroleum complex", Mr Evans said.