(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Sept 21 (Reuters) - Hedge funds continued to pare short positions in U.S. crude oil last week even as the previous short-covering rally ran out of steam.
The unusual concentration of hedge fund short positions built up between June and August has been partially unwound, reducing some of the persistent selling pressure evident in the market during the third quarter.
Speculators are not yet ready to bet heavily on a rebound in prices but the bearishness that dominated the market over the summer is dissipating.
Hedge funds and other money managers reduced their gross short position in the main NYMEX U.S. crude futures and options contract by 14.5 million barrels in the week ended Sept. 15 (link.reuters.com/her65w).
Hedge funds have reduced their gross short position for five consecutive weeks by a total of more than 52 million barrels, according to the U.S. Commodity Futures Trading Commission.
The gross short position has been cut by almost a third to 111 million barrels, down from a peak of 163 million in mid-August, though still almost double the 56 million barrels in the middle of June.
The number of hedge funds with large short positions above the reporting threshold was unchanged at 59 but their average position was trimmed by almost 250,000 barrels, or 12 percent.
There is still not much bullishness around. The number of funds with long positions, their average position and aggregate position have all remained basically unchanged over the last five weeks.
But with prices no longer locked in a steady downward trend, hedge funds have scaled back their short exposure to lock in some of the former profits and avoid losses if the market turns.
Over July and August, the market focused on bearish news about a rising U.S. rig count, increasing U.S. oil production and a feared rise in stockpiles during the autumn refinery maintenance season.
Bearish news about production and stockpiles caused prices to fall heavily, while bullish news was for the most part ignored or downplayed.
Sentiment has changed markedly over the last few weeks. The U.S. rig count is falling again and there is less concern about inventories.
The major statistical agencies (the U.S. Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries) now predict U.S. oil production will fall sharply in the rest of 2015 and during the first half of 2016.
With the news flow turning ambiguous and prices no longer falling consistently, hedge funds are less confident the next major price move will be downwards and are taking a more neutral position. (Editing by Dale Hudson)