Did hedge funds cover short positions because oil rallied or did oil rally because hedge funds covered?
Nobody knows, is the short answer, but what the latest exchange and regulatory data undoubtedly shows is that hedge funds were closing out bets against the oil price at an astounding rate last week, reports David Sheppard in London.
In North Sea Brent, the international benchmark, funds’ so-called net long position – the difference between bets on rising and falling prices – leapt by 52,801 futures and options contracts to a net long of 260,954 last week, data from the IntercontinentalExchange showed. That is a paper position equivalent to almost 261m barrels of crude.
That move was led by the closing out of almost 25 per cent of all bets by funds against the price, with short positions shrinking by 34,179 futures and options contracts in the week to January 26.
After hitting a 12-year low on January 20 of $27.09 a barrel, Brent prices have since rallied by almost a third, trading back above $35 a barrel
Funds had amassed a near record bearish position in crude oil in New York and London at the start of the year, leading to warnings from some commentators that the market could snap back if traders moved to take profits on bets against the price.
The exchange data only covers until last Tuesday, after which oil continued to rally, so it is likely the short position has shrunk further.
Funds have also been building a bullish position in Brent in anticipation of a snap back in prices. Long positions in Brent have now reached the highest on record at the equivalent of 365m barrels of crude.
Did hedge funds cover short positions because oil rallied or did oil rally because hedge funds covered?Nobody knows, is the short answer, but what the latest exchange and regulatory data undoubtedly shows is that hedge funds were closing out bets against the oil price at an astounding rate last week, reports David Sheppard in London.In North Sea Brent, the international benchmark, funds’ so-called net long position – the difference between bets on rising and falling prices – leapt by 52,801 futures and options contracts to a net long of 260,954 last week, data from the IntercontinentalExchange showed. That is a paper position equivalent to almost 261m barrels of crude.That move was led by the closing out of almost 25 per cent of all bets by funds against the price, with short positions shrinking by 34,179 futures and options contracts in the week to January 26.After hitting a 12-year low on January 20 of $27.09 a barrel, Brent prices have since rallied by almost a third, trading back above $35 a barrelFunds had amassed a near record bearish position in crude oil in New York and London at the start of the year, leading to warnings from some commentators that the market could snap back if traders moved to take profits on bets against the price.The exchange data only covers until last Tuesday, after which oil continued to rally, so it is likely the short position has shrunk further.Funds have also been building a bullish position in Brent in anticipation of a snap back in prices. Long positions in Brent have now reached the highest on record at the equivalent of 365m barrels of crude.
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