In a recent turn of events, hedge funds have amassed the largest short positions in oil futures and options since July, signaling a growing bearish sentiment among these influential investors. Bloomberg reports that Money managers have more than quadrupled bearish bets on US oil in the past month as demand angst returns to markets. Short-only positions rose by more than 20,000 contracts to 95,756 in the week ended Nov. 7, according to Commodity Futures Trading Commission data. Shorts are now the highest since July. At the same time, hedge funds slashed wagers on rising prices for the sixth straight week. This shift in sentiment reflects a confluence of factors, including concerns over slowing global economic growth, rising US oil inventories, and the easing of geopolitical tensions. US crude ended last week near July lows, before rebounding slightly Monday.
The latest data from the U.S. Commodity Futures Trading Commission (CFTC) shows that hedge funds and other managed money traders held a net short position of 125 million barrels of oil futures and options as of October 10. This is the largest net short position since July 25, when it reached 135 million barrels. The increase in short positions comes amid a recent slide in oil prices. Brent crude, the global benchmark, has fallen by more than 10% since hitting a high of $104.13 per barrel on September 5. The decline is due to a number of factors, including concerns about a slowdown in China’s economy, rising COVID-19 cases in Europe, and the release of strategic oil reserves by the United States.
“The increase in short positions is a reflection of the growing bearish sentiment in the oil market,” said analyst Phil Flynn of Price Futures Group. “Investors are concerned about slowing global economic growth and rising supply, and they are betting that oil prices will continue to fall.”
The increase in short positions could put further downward pressure on oil prices. However, it is important to note that short positions are not always profitable. If oil prices rise, short sellers could be forced to cover their positions by buying back oil futures, which could push prices even higher.
In addition to the increase in short positions, hedge funds have also been reducing their long positions in oil. As of October 10, hedge funds held a net long position of 420 million barrels of oil futures and options. This is down from a net long position of 525 million barrels on September 5. The decline in long positions is a sign that hedge funds are becoming less confident that oil prices will rise in the near future.
The oil market is notoriously volatile, and it is difficult to predict where prices will go next. However, the increase in short positions suggests that hedge funds are increasingly bearish on the outlook for oil. While the factors driving this bearish sentiment are significant, it remains to be seen whether they will translate into a sustained decline in oil prices.