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(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: https://tmsnrt.rs/2LBMvYo
LONDON, May 13 (Reuters) - Hedge fund managers have started to turn more bearish on oil as concerns about a slowing global economy and an over-extended price rally outweigh fears about sanctions and supply disruptions.
Hedge funds and other money managers were net sellers of 25 million barrels of futures and options in the six major contracts linked to petroleum prices in the week to May 7 (https://tmsnrt.rs/2LBMvYo).
Portfolio managers have now sold a total of 42 million barrels in the last two weeks, after buying 609 million over the previous 15 weeks since Jan. 8, according to position records published by regulators and exchanges.
Last week, funds sold NYMEX and ICE WTI (-32 million barrels), U.S. gasoline (-8 million) and U.S. heating oil (-2 million) though they were small buyers of Brent (+2 million) and larger buyers of European gasoil (+16 million).
Funds have sold after their position became very stretched late last month, with bullish long positions outnumbering bearish short ones by a ratio of nearly 9:1 on April 23.
Large concentrations of fund positions have generally preceded a reversal in the price trend, so some managers may have anticipated a future fall in prices.
Hedge funds have boosted their short positions across the petroleum complex to 147 million barrels up from a low of just 119 million on April 23.
Fund managers have raised short positions in NYMEX WTI to 39 million barrels up from a recent low of 24 million on April 23, the largest imbalance since early October.
The rise in NYMEX WTI short positions, which is the most significant since the start of 2019, could indicate the start of a new short-selling cycle, the first since late August 2018.
Hedge fund managers have been selling crude and fuels despite intensifying U.S. sanctions on oil exports from Iran and Venezuela and signals Saudi Arabia is in no hurry to replace lost barrels.
But storm clouds are gathering over the global economy, with slowdowns reported in freight movements and manufacturing orders, while tariffs between the United States and China are rising.
Financial markets show increasing signs of stress, with equity prices retreating from recent highs set in the second half of April and the U.S. Treasury yield curve moving back towards inversion.
Recent fund selling likely reflects greater concerns about prospects for an economic slowdown, which would hit oil consumption growth and lead to lower prices even if Saudi Arabia continues to restrict exports.
- Oil prices correct lower on hedge fund sales (Reuters, May 7)
- Oil prices stumble as hedge funds become overextended (Reuters, April 29)
- Hedge funds oil positions start to look stretched (Reuters, April 15) (Editing by Edmund Blair)