– Saudi Arabia says that oil inventories will drop substantially in the next few months. Hedge funds should be cautious in the prospect of oil prices.

Asset managers slashed their net position in three futures contracts and Brent and WTI’s main option deals of 39 million barrels in the week ending June 6 (

The net position has increased by 114 million barrels over the previous three weeks, data analysis published by regulators and the stock exchange shows (

The previous rise, however, was largely driven by the closing of short positions and not the creation of a new future, and short-covering now seems to be running by itself.

Hedge funds added 24 million barrels of new short positions in the past week, all at Brent, where shorts rose 33 million barrels.

The ratio of long to short positions dropped to just 3.1 to 1, well above the recent peak of 5.8 on April 18, let alone the 10.3 note set in February (

From a positioning perspective, the risk balance is now reversed, with few long positions remaining for liquidation and a relatively large number of short positions that need to be covered.

Brent prices traded near the lowest level since OPEC announced that it had cut production on Nov. 30, which also showed some potential to rise in the short term.

Saudi Arabia has offered some rhetorical support by repeating its determination to bring global oil stocks down to an average of five years, although policy makers have so far resisted pressure to cut production again.

But the continuous rise in the number of rig drilling for oil in the United States has made it difficult for fund managers to become bullish again.

The number of rigs that target oil formation has more than doubled in the last 12 months, although WTI prices are down about 6 percent. The number of rigs continued to increase even after the WTI price peaked in February and began to decline (

Because production is delaying the number of six-month rigs, recent drilling increases will ensure that the U.S. output Continue to increase for the rest of 2017 and enter 2018.

U.S. Energy Information Administration Now estimates that output will increase by 460,000 barrels per day (bpd) by 2017, up from an estimated 110,000 barrels per day increase in January.

The agency estimates production to increase by 680,000 barrels per day by 2018, against an estimated 300,000 bpd in January.

With so much additional production projected to come from the United States, with output also rising from Brazil, Norway, Libya and Nigeria, sentiment among hedge fund managers remains warm.

Fund managers have set a big net long position in crude oil twice this year, only for prices to fall sharply, making them suffer huge losses.

Many want strong evidence that the market is really rebalancing before taking another risk and will last for the third time.


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