Hedge funds are taking their biggest bet against oil for at least a decade as the cost of the black stuff falls to 13-year lows, it has emerged.
The US Commodity Futures Trading Commission said the number of short positions on West Texas Intermediate, the US crude benchmark, jumped 15% to almost 201,000 in the week to January 12.
This is the highest level since the body began collecting data in 2006.
Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital, said: “When we have monster pullbacks, things don’t end politely.
“I think we’ll drop to $24 or $25 and then have a sharp V-shaped rally.”
US crude slipped close to 2003 lows of $28.36 on Monday.
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Estimates of an extra 500,000 barrels a day in exports from Iran, now free of sanctions, drove Brent crude to a low of $27.70 in early trading before recovering.
The sanctions had previously cut Iran’s oil exports by two thirds from their 2011 peak to little more than one million a day.
Iran has the fourth-biggest proven reserves in the world, while Saudi Arabia is refusing to cut production as it takes on the US shale oil producers.
HSBC chief executive Stuart Gulliver said the price of oil is likely to settle between $25 and $40 in a year’s time.
“Major producers are currently delivering two to 2.5 million barrels a day more than demand, so the question is how long they can continue to overproduce at that level,” he told a conference in Hong Kong.