Hedge funds slashed their bets on the three main long oil futures contracts by 109 million barrels in the week that ended on June 20th, according to a new report by Reuters.
Fund managers are now holding two long positions for every short position at this point – marking one of the most bearish oil price markets since prices fell in 2014.
Hedge funds had placed bullish bets on the Organization of Petroleum Exporting Countries' (OPEC) ability to reign in the supply glut by cutting output to rebalance markets, but after six months of a 1.2-million-barrel bloc-wide production reduction, oil prices stand no higher than they did at the beginning of 2017 when the deal went into effect.
Analysts say the new low could still bring a jump in futures.
"We kind of hit bottom after this long drop," Michael Lynch, the head of Strategic Energy & Economic Research told Bloomberg. "It makes sense that we're either going to stabilize or be up a little unless some news comes out."
Hopeful from a rise in oil prices after initial compliance numbers, fund managers boasted a net long position of 1 billion barrels at the end of February. By March, prices began to fall again, only to rise a month later in anticipation of the OPEC meeting late-May in Vienna. There, the bloc decided to extend cuts through March 2018.
The glut continues due to rising production in Libya and Nigeria—both OPEC nations exempt from the deal—as well as high output from American shale producers and Saudi Arabia's failed policy of cutting exports to force the U.S. and major Asian nations to tap into existing inventories.
Brent barrel prices traded up 0.42 percent at $45.73 a barrel at the time of writing, while West Texas Intermediate also saw an increase of 0.67 percent, bringing barrel prices to $43.30.
By Zainab Calcuttawala for Oilprice.com
