Hedge Funds Increasingly Bullish on Crude Oil as Production Drops

Apr 20 2015 | 11:43am ET

Slowing U.S. production of crude oil is encouraging hedge funds to take more bullish positions on the commodity.

Data from the U.S. Commodity Futures Commission for the seven days ended April 14 shows speculators have boosted net long positions in West Texas Intermediate crude oil by 9%, according to a Bloomberg report. The increase brings net long positions to an eight-month high. 

WTI has rebounded from severe selling earlier this year as U.S. drillers report the fewest rigs in action since 2010. Companies have cut production back in response to the collapse in oil prices that began last fall. The total U.S. rig count is now down to 734, according to energy company Baker Hughes, which is the lowest level since 2010. 

Meanwhile, The U.S. Energy Information Agency expects shale output to experience its first drop in May since 2013, and total U.S. crude production to fall in June and decline at least through September.

However, inventories remain at their highest levels since 1930, suggesting production cutbacks may take some time to percolate through the system. Even if U.S. production is significantly lower by the end of the year, enough oil is in storage to temporarily absorb the decline. 

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