Oil optimism slumps to 12-week low as price dips to bear market

Photographer: Luke Sharrett/Bloomberg
Photographer: Luke Sharrett/Bloomberg

Hedge funds kept running away from oil as prices tumbled into a bear market.

They cut bets on West Texas Intermediate crude’s rally to the lowest level in 12 weeks, according to data released Friday. Optimism on Brent crude, the global benchmark, declined by the most this year.

WTI reached bear territory last Wednesday, dropping more than 20% from its April high amid escalating disputes between the U.S. and its trading partners. Prices rebounded toward the end of the week as Saudi Arabia and Russia reiterated their commitment to supply cuts, leaving it unclear whether investors had made the right call.

“The zeitgeist of the oil market is that it wants to track the broader macro environment,” said Tamar Essner, Nasdaq’s director of energy & utilities. “A lot hinges on what the outlook for the global economy looks like, which really hinges on a trade deal.”

The net-long WTI position — the difference between bets on a price increase and wagers on a decline — fell 8.5% to 183,372 futures and options contracts in the week ended June 4, the U.S. Commodity Futures Trading Commission said. Long positions fell 6.1%, while short-selling wagers ticked up 3.2%.

“People were trimming but they weren’t running for the exits,” said Rob Haworth, who helps oversee $159 billion at U.S. Bank Wealth Management in Seattle. With more optimistic news for oil bulls near the end of the week, investors still had “room to get more constructive on prices,” he said.

Other positions: The net-long position on Brent slid by 14% to 304,327, the biggest decline since early December. Longs fell by 13%, but shorts also declined by 5%. The net-long position on benchmark U.S. gasoline dropped 11% to 82,011 contracts, also the lowest in 12 weeks. The net-short diesel position jumped by 72% to the most bearish in almost two years.

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