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Hedge Funds Shun WTI While Brent Hits 12-Week High

Permian

Brent prices reached a 12-week high on Friday, while WTI Crude prices—although surging on the latest drop in the U.S. rig count—were not touching week-highs, suppressed by rising U.S. crude output.

In a sign that investors are more optimistic on a rise in Brent prices, data show that hedge fund managers lowered their net long position on WTI by 2 percent to 274,441 futures and options in the week that ended on August 15, according to data by the U.S. Commodity Futures Trading Commission quoted by Bloomberg.

Long positions dropped by 2.2 percent, while short positions declined by 2.7 percent, according to the data.

On the other hand, ICE Futures Europe data show that the net long position on Brent doubled in the six weeks ended August 8, Bloomberg reports.

The discount at which the WTI trades to Brent reached its highest since September 2015.

What’s more, the Brent futures curve has now flipped into backwardation for the first time in years, suggesting that the oil market is tightening and going toward re-balancing.

The WTI futures curve is still in a state of contango—the opposite of backwardation.

WTI prices got a boost on Friday from the Baker Hughes report showing that the number of active oil and gas rigs in the United States fell last week by 3 rigs as drillers proceed more cautiously. Combined, the total oil and gas rig count in the U.S. now stands at 946 rigs, up 455 rigs from the same time last year.

Related: Qatar Aims To Ease Its Reliance On LNG Exports

However, despite the rig count drop, U.S. crude output continues to grow, with production averaging 9.502 million barrels per day for the week ended August 11, according to the Energy Information Administration (EIA), which now expects US production to reach an average of 9.9 million barrels per day in 2018.

Early on Monday, oil prices were steady, taking a breather from the Friday rally. At 8:50am EST, WTI Crude was at US$48.36, while Brent was at US$52.41. Just before noon, however, crude prices started to fall the rally prompted traders to take profits.

By Tsvetana Paraskova for Oilprice.com

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