Hedge Funds Bullion on Oil After OPEC Cut

Hedge funds were badly caught out by the production cuts announced by OPEC at the end of last month, triggering a furious rally as managers raced to buy back loss-making short positions.

When OPEC announced a deal had been reached on Nov. 30, a substantial number of short positions were still uncovered, providing the opportunity for a classic squeeze.

Now the hedge fund community has turned its bearish position going into the meeting into the largest bullish position on record.

Hedge funds and cut their short positions in Brent and WTI futures and options by 134 million barrels in the week to Dec. 6

Fund managers also added 94 million barrels of fresh long positions, according to positioning data published by regulators and exchanges.

The shift from short-to-long amounted to a record 228 million barrels in a single week, and took the total net long position to 728 million barrels, which was also a record (tmsnrt.rs/2hm1C5f).

There has never been a comparable shift from bearishness to bullishness among speculators over such a short space of time in the last 25 years.

The scale of the turn round explains why Brent prices jumped by more than $7.50 per barrel or 16 percent in the week following the OPEC meeting.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza