Hedge fund managers continued to exit from their former bullish positions in crude oil and fuels last week but the worst of the selling may be over, which has helped steady futures prices.
Hedge funds and other money managers cut their combined net long position in the six most important petroleum futures and options contracts by another 54 million barrels in the week to Nov. 20.
Portfolio managers have slashed their combined net long position by a total of 607 million barrels over the last eight weeks, the largest reduction over a comparable period since at least 2013, when the current data series began, and very likely the largest ever.
Long positions were reduced by 55 million barrels to just 752 million barrels, the lowest level since January 2016, at the trough of the bear market (tmsnrt.rs/2RhOtvg).
But short positions, betting on a further fall in prices, were trimmed, albeit by just 1 million barrels, the first such reduction in eight weeks.
In particular, hedge fund managers reduced short positions in NYMEX and ICE WTI by 10 million barrels, the biggest reduction for 12 weeks.
By Nov. 20, WTI prices had declined by 30 percent from their peak and Brent was down 28 percent, which likely convinced many fund managers the scope for further falls was much smaller than before.
Long positions accumulated during the bull market in the second half of 2017 and early 2018 have now all been liquidated, and for the moment most managers appear reluctant to add new short positions.
The wave of hedge fund selling which has hammered oil prices since the start of October may therefore have run its course for the time being.
With positions now squared up, the next move in oil prices will be determined by how U.S. shale firms and Saudi Arabia react to the recent fall in oil prices and whether the global economy slows further.