Hedge funds have increased bearish oil wagers to a record as global equities fell and Iran was poised to add to the crude supply glut.
“There are a lot of people who thought oil can’t go down much further and tried to call a bottom,”said Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital.
“When we have monster pull-backs, things don’t end politely. I think we’ll drop to $24 or $25 and then have a sharp V-shaped rally,” he said.
Oil has dropped amid concern turmoil in China’s markets will curb fuel demand.
Prices fell further as the week progressed on signs that sanctions against Iran would be lifted, allowing a boost in crude shipments from Opec’s fifth biggest member.
The restrictions were removed over the weekend.
“There’s escalating recognition any added production will prolong the surplus,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.
“Oil is also down on worries about demand. The impact of concerns about China on all markets underscores worries about global economic growth.”
Speculators’ short position in West Texas Intermediate crude rose 15% last week, data from the US Commodity Futures Trading Commission show.
It is the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years.
Iran is targeting an immediate increase in shipments of 500,000 barrels a day, Amir Hossein Zamaninia, deputy oil minister for commerce and international affairs, has said.
It plans to add another half-million barrels within months.
Analysts and economists surveyed by Bloomberg said it can only add 400,000 barrels after six months.
US crude inventories climbed in the week ended January 8, adding to the glut, Energy Information Administration data show.
Supplies at Cushing, Oklahoma, the delivery point for the benchmark West Texas Intermediate (WTI) crude, rose to a record.
Speculators’ short position in WTI rose by 25,899 contracts to 200,975 futures and options, CFTC data show.
Longs, or bets that prices will rise, climbed 7.4%, the biggest gain in a year. Net longs dropped 9.3%.
Falling prices are curbing investment, setting the stage for output declines that will reduce the global glut later this year, according to Bank of America and Goldman Sachs.
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