LONDON (Reuters) - Hedge funds have unwound much of the concentration of bullish positions that contributed to a fall in oil prices this month, suggesting a broader range of views about where prices go next.
Hedge funds and other money managers now hold a combined net long position in Brent and WTI of 684 million barrels, down from a record 951 million on Feb. 21, though still well above the recent low of 422 million on Nov. 15 before OPEC announced output cuts.
Fund managers reduced their net long position in the three main futures and options contracts linked to Brent and WTI by 38 million barrels in the week to March 21.
They have cut their net long position by a total of 268 million barrels over the last four weeks, according to an analysis of data published by regulators and exchanges (tmsnrt.rs/2o9bWk8).
Fund managers have unwound half of the 529 million barrels of extra net long positions they accumulated between the middle of November and the middle of February (tmsnrt.rs/2o99z11).
The hedge fund community remains bullish overall towards crude but there is now a much wider range of opinions about whether prices will rise or fall in the short term.
Bullish long positions outnumber bearish short positions by a ratio of almost 4:1 but the ratio has dropped from more than 10:1 just four weeks ago (tmsnrt.rs/2mHKHQA).
Hedge funds hold 918 million barrels of long positions in Brent and WTI, down from a record 1.05 billion barrels on Feb. 21.
But managers have more than doubled the number of short positions from 102 million barrels to 235 million barrels over the same period.
The more balanced distribution of hedge fund positions should reduce the risk of further sharp oil price moves in the short term.
There are still a large number of long positions that could be liquidated in the coming weeks if prices drop further and managers are forced to sell.
But the emergence of a substantial number of short positions that will ultimately need to be bought back should help counteract further price falls.
Hedge fund managers appear to have embarked on a new cycle of short selling, which would be the sixth since the start of 2015 (tmsnrt.rs/2mHQRjK).
But the down-cycle could prove more short-lived than earlier cycles, with Brent prices no longer falling and finding some support just above $50 per barrel (tmsnrt.rs/2nEuP0w).
Far fewer long positions were liquidated in the week ending on March 21 than had been closed out during the week ending on March 14.
And only 21 million barrels of fresh short positions were established compared with 70 million in the week to March 14.
The enormous concentration of hedge fund positions that presaged the sharp drop in oil prices starting on March 8 seems to have dissipated and the immediate outlook appears much more balanced.
(John Kemp is a Reuters market analyst. The views expressed are his own)
Editing by Edmund Blair