COLUMN-Hedge funds sour on crude oil and fuels: Kemp

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(John Kemp is a Reuters market analyst. The views expressed are
his own)
    * Chart 1: http://tmsnrt.rs/2rMOh9T
    * Chart 2: http://tmsnrt.rs/2shCOmq
    * Chart 3: http://tmsnrt.rs/2shNukU
    * Chart 4: http://tmsnrt.rs/2rMooXW

    By John KempLONDON, June 19 (Reuters) - Hedge fund managers have become
very bearish about the outlook for oil prices as production from
countries outside OPEC grows and threatens to undermine the
effectiveness of OPEC's output controls.
    Hedge funds and other money managers cut their combined net
long position in the three major futures and options contracts
linked to Brent and WTI by 51 million barrels in the week to
June 13 (http://tmsnrt.rs/2rMOh9T).
    Fund managers cut their net long position for the second
week running by a cumulative total of 91 million barrels,
according to data published by regulators and exchanges (http://tmsnrt.rs/2shCOmq).
    Portfolio managers also cut their net position in gasoline
by 13 million barrels and heating oil by 19 million barrels last
week (http://tmsnrt.rs/2shNukU and http://tmsnrt.rs/2rMooXW).
    Hedge funds have discounted the fact oil prices are already
under than $50 per barrel and reassurances from OPEC ministers
that global oil stocks will draw in the second half of the year.
    Instead they have focused on the continued rise in the
number of rigs drilling for oil in the United States and signs
gasoline and diesel demand may not be growing fast enough to
absorb the record fuel being produced by U.S. refineries.
    The U.S. Energy Information Administration predicts global
oil stocks will draw down in the third quarter of 2017 as a
result of OPEC's output cuts.
    But global stocks are expected to rise again through 2018 as
OPEC compliance deteriorates and supply from non-OPEC sources
    Bearish sentiment among oil traders has triggered a wave of
short selling, with hedge funds adding 45 million barrels of
extra short positions in crude, as well as 15 million in
gasoline and 16 million in heating oil.
    There are signs hedge funds may have embarked on the eighth
cycle of short-selling in WTI since the start of 2015, though it
is still too early to tell.
    The only supportive factor for oil prices in the short term
is that so many short positions have been established and there
are relatively few long positions left to liquidate.
    Conditions are in place for an eventual short-covering rally
but the rebound may not come until there are clear signs global
stocks are falling and U.S. shale drilling is levelling off.

 (Editing by Edmund Blair)
 ((john.kemp@tr.com; +44 207 542 9726 and on twitter


This article appears in: Stocks , World Markets , Oil

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