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Hedge funds up short bets on oil again

Oil prices came under renewed pressure Monday as data revealed that hedge funds had upped their short positions on U.S. crude last week, as the strength of China's economy continues to weigh on commodity prices.

Data from the CFTC's (U.S. Commodity Futures Trading Commission) commitment of traders report Friday showed that managed money traders, which largely refers to hedge fund activity, showed some 27,694 short contracts were added last week. These are essentially traders taking bets that the price of oil will fall and compared to 7,073 long contracts that were added in the week ending October 27.

Drilling rig Texas
Scott Dalton | Bloomberg | Getty Images

In total, managed money traders have 273,436 long positions, compared with 134,264 short positions, the report said.

The number of open interest contracts, or the amount of options or futures contracts not closed which helps traders identify volumes and interest in a position, also increased by 62,471 contracts to 1,676,033 week over week, according to the CFTC

Hedge funds and other money managers had cut their gross short position in the key NYMEX WTI futures and options contract to 90 million barrels earlier in October. This was down from 108 million barrels at the start of last month and from the peak of 163 million barrels in early August, according to Reuters citing CFTC data.

Brent crude and U.S. crude futures both fell over 1 percent on Monday to trade around $48.87 and $45.82 respectively following more weak Chinese economic data. Factory activity fell in the world's second largest economy for an eighth straight month in October.

Supply worries also weighed on the price, after Russia also reported that its October oil production hit a post-Soviet record of 10.78 million barrels per day.

The price of oil has collapsed from near $120 a barrel in June last year to lows of around $40 in August.

Goldman Sachs, amongst the biggest bears on the oil price said last month that the rebalancing taking place in China's economy will continue to weigh on commodity prices. It added that there is also potential for oil prices to "collapse" in the U.S. to trade around the price its costs to produce, if oversupply "breaches logistical and storage capacity."

The investment bank also downgraded its price outlook for WTI crude to $42, $40 and $45 per barrel over a 3, 6 and 12-month time horizon respectively.

Last week, ratings agency Moody's also cut its price outlook for the both Brent crude and WTI, believing the rise in prices will take place at a much slower pace than originally forecast as oversupply and demand issues show no signs of waning.

The agency downgraded its price assumption for 2016 on Brent crude to $53 per barrel, down from $57. WTI was cut to $48 from $52 per barrel.