Hedge funds cut net longs on U.S. crude as $50 oil raises worry

*US hedge funds.

*US hedge funds.

11 June 2016, New York — Hedge funds and other big speculators cut their net-long, or bullish, position in U.S. crude this week for the first time in a month, trade data showed on Friday, indicating concern the oil market may not be sustained at $50 a barrel.

Managed money’s combined net longs in U.S. crude futures and options in both New York and London fell by 11,478 contracts to 244,055 contracts during the week to June 7, data from the U.S. Commodity Futures Trading Commission (CFTC) showed.

In three previous weeks tracked by the CFTC, the managed net long position rose nearly 40,000 contracts, or 40 million barrels, in all.

Long-only positions grew again in the latest week covered by the CFTC, but short positions, representing bearish bets, exceeded those.

Investors in oil have turned bearish since U.S. crude’s West Texas Intermediate (WTI) benchmark hit an eight-month high of $50.53 a barrel on June 7.

On Friday, WTI settled on Friday at $49.07, down 3 percent for its largest one-day slide since early April.

“A lot of the supply disruptions that drove the market to $50 are being resolved. There are also signs that at these prices, U.S. oil production is likely to climb,” said John Kilduff, a partner at New York energy hedge fund Again Capital.

Both WTI and futures of global oil benchmark Brent have risen some 90 percent from 13-year lows hit during the winter, helped by supply disruptions in Nigeria, Canada, Libya and Venezuela.

Prior to that, worries about a global crude glut drove prices down between mid-2014 and the first quarter of 2016 to below $30 from above $100 a barrel.

The U.S. oil rig count rose this week for a second week in a row, with drillers adding three rigs after last week’s nine, data showed. [RIG/U]

Before that, oil rigs had fallen on average by 10 per week this year. Last year, they slumped by an average of 18 a week as low crude prices made it uneconomical to drill.

“This looks like the beginning of a trend that will translate to the slowing down of U.S. crude production declines,” said Tariq Zahir, a trader and energy portfolio manager at Tyche Capital Advisors in New York.

The oil rally of the past few months has triggered a wave of hedging among U.S. producers, looking to lock in future output.

Producer short positions in U.S. crude futures and options fell during the week to June 7, but still hovering near highs hit early in May, the CFTC data showed.

*Barani Krishnan; Editing – Alan Crosby & David Gregorio – Reuters

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