Even though U.S. hedge funds have unwound 13% of their long positions, a shift back to mid-February allocations is not exactly capitulation. According to a recent CFTC report, broad commodity sentiment within the hedge fund community really is looking grim, with long positions plunging to levels not seen since last July. But in the critical oil patch, positioning is still really high. At worst, traders seem to be banking on a fundamental supply/demand scenario equivalent to when the Egyptian revolution was just wrapping up -- before the Japanese earthquake changed everything in the energy world. While the fundamentals still bode well for the long term, in the short run there is reportedly a lot of pain out there in the hedge fund community. Many funds got a beating in the recent commodity rout. Others were betting on the euro against the dollar and so are bleeding from the macro side. Either way, there is still downside left for oil-driven investments like the ETF USO ( quote ): Naturally, the long-term fundamental outlook for oil is still positive. Countries from China to the United States are still thirsty for new supplies of petroleum and people from all over the world are driving more cars than ever. But in the short term, there is still a lot of speculative froth out there.