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Funds pared bets before US crude fell below $50

Hedge funds further trimmed record bets on higher oil prices ahead of this week’s sharp drop, government data showed on Friday, helping push the US crude benchmark below $50 a barrel.

Funds and other big money managers reduced their net bullish position in Nymex West Texas Intermediate crude oil futures by the equivalent of 11m barrels to 357m barrels in the week to Tuesday, the second straight decline from an all-time high in late February.

The data from the US Commodity Futures Trading Commission also showed a reduction of 8m barrels in net purchases of WTI listed on the London-based ICE Futures Europe exchange, bringing the net long position there to 25m barrels equivalent.

The closely watched snapshot of positions was taken a day before the US energy department released a report on domestic oil stockpiles that sent a shiver through oil markets after months of steadiness.

WTI crude, the US marker, fell 9.1 per cent on the week to settle at $48.49 a barrel, its worst weekly loss since early November. Brent, the global benchmark, lost 8.1 per cent to $51.37.

Wednesday’s inventory report revealed that US crude inventories had climbed for a ninth straight week to a record high, bringing this year’s cumulative increase to 49.4m barrels.

“The uptrend in US crude stocks, formerly rejected by market bulls as relevant to price direction, has now become the dominant fundamental concern,” said Tim Evans, an energy analyst at Citigroup.

While US oil stocks typically climb early in the year as refineries undergo maintenance, the scale and persistence of the rise in the world’s largest petroleum consumer has led to doubts about the outcome of a recent agreement to cut output between Opec members and 11 major oil producing countries. “The markets are getting impatient,” said Michael Wittner, head of oil research at Société Générale.

The agreement between Opec, Russia and others in November had made investors increasingly keen to buy oil, lifting their net position in futures to an all-time high.

After initially rising late last year, oil prices moved in the tightest range for more than a decade. Brent traded between $53 and $57 a barrel as both bullish and bearish factors weighed on the market — strong Opec compliance with the supply cut agreement that has been met with a resurgence in production from US shale fields.

“If oil prices continue to slide, then the risk increases that the weaker Opec nations [Iraq, Venezuela, Angola] start to export more oil to reduce diminishing revenues,” said Olivier Jakob of Petromatrix, a Switzerland-based consultancy.

The crude oil slide happened as senior energy executives gathered in Houston for the annual CERAWeek industry conference, where the mood was better than a year ago when prices were at $30 a barrel.

Khalid al-Falih, Saudi Arabia’s oil minister, on Tuesday cautioned that the agreement struck by Opec and non-members to curb output was helping revitalise the US shale market. An extension of the deal would be contingent on how quickly oil inventories fell back to average levels, he added.

In a press briefing on Tuesday evening, Mohammad Barkindo, Opec secretary-general, played down concerns about high inventories in the US. He said that observers often focused on the US numbers because the data were available, and suggested that offshore stocks were starting to decline.

“If you look at the totality, the trend has started. We have seen big companies now destocking offshore,” he said. “We are closely watching this trend, and it will be magnified, I believe, in the months to come.”