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Shortselling of oil jumps as sputtering trade talks darken outlook

New York

PESSIMISM is back in vogue in the oil markets, as investors bet that sputtering trade talks and swelling US output can kill crude's rally.

Hedge funds lifted bearish bets on West Texas Intermediate crude by 39 per cent, the biggest short-selling surge in more than eight months. Meanwhile, bets on a rally retreated for the second straight week.

Crude futures slipped to their third weekly loss in a row on Friday after high-level talks between the US and China broke up, with President Donald Trump's administration giving China a month to reach an agreement or face expanded tariffs.

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"Most of the bullish news on supply is priced in now so people are turning toward the trade wars," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

"People who were assuming low exports from Iran are now wondering how much leakage there'll be; Venezuela's not at the bottom yet, but you can probably see it from here."

The net-long WTI position - the difference between bets on a price increase and wagers on a decline - fell 10 per cent to 271,912 futures and options contracts in the week ended May 7, the US Commodity Futures Trading Commission said. Long positions fell 5.7 per cent. The sum of long and short positions fell to its lowest in a month.

Money managers showed more faith in Brent crude prices, which are less affected by the US production surge. The net-long Brent tally rose by 0.5 per cent, according to ICE Futures Europe exchange data. It was the ninth straight increase, the longest such streak since 2011. BLOOMBERG