Hedge funds are holding their smallest bullish exposure to US crude oil since February, cutting net long positions after prices broke below the key $40-per-barrel support this week, data showed on Friday. Data from the US Commodity Futures Trading Commission (CFTC) showed money managers, including hedge funds and other speculators, cut their net long position on NYMEX's West Texas Intermediate (WTI) crude by 31,031 contracts to 80,302 in the week to August 2. That was the lowest net long position held in US crude by money managers since the week ended February 23.
Managed money's bullish wagers on WTI have fallen by 175,230 contracts over an eight-week span. That is equivalent to more than 175 million barrels in actual supply, given NYMEX's position size of 1,000 barrels per contract. Oil markets have been gripped by fear in recent weeks that the oversupply in crude could get out of hand again like two years ago. Higher-than-anticipated stockpiles of gasoline despite the peak summer driving season have also prompted speculators to hold a record net short, or bearish, position on NYMEX-traded gasoline. Worries of an oil glut pushed WTI down to a settlement of $39.51 a barrel on August 2, the first close below $40 since April. The US crude benchmark lost 8 percent in that week.
Since then, WTI has recovered on short-covering, settling on Friday at $41.80 a barrel. Some traders think the market is headed lower again. "The reality is we just have too much oil supply out there to continue supporting prices at these levels," said Phil Davis, who trades in crude futures and options for PSW Investments in San Diego.
WTI timespreads also weakened earlier this week, with the December contract for 2016 versus 2017 reaching a discount of more than $4 a barrel, its widest in nearly eight months. That indicated eroding demand for oil slated for nearer-term delivery. Crude prices are still up about 60 percent from 12-year lows of $26 to $27 in the first quarter. But the recovery that began in earnest in March met with resistance after prices above $45 enticed oil drillers to return to the well pad. Drillers added oil rigs for a sixth straight week this week. Rebalancing the oil market has proved a long and frustrating process as oil-exporting countries hard hit by the 2014-15 price slump were themselves some of the fastest-growing oil consumers.