Hedge funds and money managers trimmed their bullish wagers on US crude oil for the second week in a row, data showed on Friday, as skepticism over OPEC delivering on its promised cuts grew and inventories in the US began to swell once again.
The speculator group cut its combined futures and options position in two major NYMEX and ICE markets by 5,151 contracts to 327,057 in the week to January 10, US Commodity Futures Trading Commission (CFTC) data showed.
With the net long position still in the upper part of the five-year range, there is potential for a further cycle of selling, Tim Evans, energy futures specialist at Citigroup said in a note.
US crude oil futures on the New York Mercantile Exchange fell about 3 percent and averaged $52.69 per barrel during the five trading days ended Jan. 10.
Investors have been bracing for a wave of US shale oil to hit the market as prices remain above $50 a barrel.
Producers' gross short positions on the NYMEX alone climbed to the highest levels since 2007 with 675,968 positions, a move seen as a sign of hedging.
The Organization of the Petroleum Exporting Countries (OPEC), which accounts for a third of global oil supply, agreed late in November to cut production starting Jan. 1 by about 1.2 million barrels per day (bpd), or over 3 percent, to 32.5 million bpd.
However, doubts have since festered over whether countries such as Iraq would stick to their pledge to trim output and reign in a global glut that has punished prices for more than two years.
In Iraq, OPEC's second-biggest producer, oil exports from the southern Basra ports reached a record high of 3.51 million barrels per day (bpd) in December, the oil ministry said early this week.
A strong dollar has also kept greenback-denominated oil in check. Analysts have said in recent days that a large speculative long position left the market ripe for a correction. Net longs climbed to the highest levels since mid-2014 in recent weeks.
On Friday, oil prices settled about 1 percent lower, as concerns over demand from China, the world's second-largest oil consumer, compounded concerns about OPEC compliance.
In the United States, the Energy Information Administration sharply raised its forecast for 2017 US crude output growth to 110,000 barrels per day. Last month it forecast an 80,000 bpd decline.
Weekly data showed crude stockpiles rose sharply last week as imports hit record highs. Crude inventories rose 4.1 million barrels in the week to Jan. 6, the EIA said, higher than analysts' expectations for a 1.2-million-barrel build.
Crude production also rose notably last week, particularly in the lower 48 states. Overall production was 8.95 million bpd last week, the most since April of last year.
Among refined products, speculators raised their bullish bets in gasoline to a fresh two-and-a-half-year high, with a combined futures and options net long position of 63,443 contracts in the week to Jan. 10. The group cut its net long on Ultra Low Sulfur Diesel (ULSD) from a two and a half year high as inventories soared.