wolfstreet.com / By Nick Cunningham, Oilprice.com /
Shocking level of bullishness by hedge funds, then prices plunged.
Oil prices plunged on Wednesday and Thursday, dropping to their lowest levels since December when the optimism surrounding the OPEC deal was just getting underway. WTI dipped below $50 for the first time in 2017 on March 9, a two-day loss of more than 8 percent.
The catalyst for the sudden decline in prices was yet another remarkably bearish report from the EIA, which showed an uptick in crude oil inventories by 8.2 million barrels last week. That takes crude stocks to another record high, and it was the ninth consecutive week of inventory builds.
Up until now, oil speculators have taken the unusual increase in crude inventories in stride. Instead of paring back their long positions, hedge funds and other money managers doubled down over the past two months, putting more money into bullish bets, hoping that the OPEC production cuts would outweigh the comeback in U.S. shale.
The result was a shocking level of bullish bets on WTI and Brent, creating a lop-sided position in the futures market. That is not necessarily a problem if market conditions are tightening, as many investors believed, but it begins to look unbalanced if in fact the oil market is still oversupplied.