(The opinions expressed here are those of the author, a columnist for Reuters)
By John Kemp
LONDON (Reuters) - Hedge funds have resumed liquidating their bullish long positions in crude oil and refined fuels amid more signs that the earlier rally in prices has fizzled out.
Hedge funds and other money managers cut their combined net long position in the six most important futures and options contracts linked to petroleum prices by 50 million barrels in the week to March 6.
The reduction largely reversed an increase of 68 million barrels the previous week, according to position records published by regulators and exchanges (tmsnrt.rs/2DmlwXg).
Portfolio managers have now reduced their net long position in petroleum in five of the last six weeks by a total of 245 million barrels since Jan. 23.
The most recent week saw a reduction in net length in NYMEX and ICE WTI (-17 million barrels), Brent (-5 million), U.S. gasoline (-10 million), U.S. heating oil (-5 million) and European gasoil (-13 million).
Some of the froth has blown off the market in the last six weeks but the hedge fund community still has a very bullish bias towards oil prices.
Fund managers hold a net long position in the six major petroleum contracts amounting to 1,239 million barrels of oil, a level of bullishness that had never been seen until four months ago.
Long positions still outnumbered short positions by a ratio of 10:1, down from a peak of almost 12:1 in January, but again a level of bullishness that was unprecedented until this year.
With so many long positions already established, and few remaining short positions to cover, oil prices have struggled to rise further in recent weeks.
Instead the market has seen a slow but steady liquidation with existing longs cut by a total of almost 250 million barrels (15 percent) since Jan. 23.
It remains uncertain whether this is merely a pause and the price rally will resume shortly, or whether it marks a temporary peak, with more liquidation and price falls to come.
But the balance of risks remains tilted towards the downside in the short term given the huge number of long positions still hanging over the market.
Editing by David Evans