Oil Pessimism Back in Vogue

(Bloomberg) -- Pessimism is back in vogue in the oil markets, as investors bet sputtering trade talks and swelling U.S. output can kill crude’s rally.

Hedge funds lifted bearish bets on West Texas Intermediate crude by 39%, the biggest short-selling surge in more than eight months. Meanwhile, bets on a rally retreated for the second straight week.

Crude futures slipped to their third weekly loss in a row on Friday after high-level talks between the U.S. and China broke up, with President Donald Trump’s administration giving China a month to reach an agreement or face expanded tariffs.

“Most of the bullish news on supply is priced in now so people are turning toward the trade wars," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “People who were assuming low exports from Iran are now wondering how much leakage there’ll be; Venezuela’s not at the bottom yet, but you can probably see it from here."

The net-long WTI position -- the difference between bets on a price increase and wagers on a decline -- fell 10% to 271,912 futures and options contracts in the week ended May 7, the U.S. Commodity Futures Trading Commission said. Long positions fell 5.7%. The sum of long and short positions fell to its lowest in a month.

Money managers showed more faith in Brent crude prices, which are less affected by the U.S. production surge. The net-long Brent tally rose by 0.5%, according to ICE Futures Europe exchange data. It was the ninth straight increase, the longest such streak since 2011.

Other positions: The net-long position on Brent rose by 1,806 contracts to 406,175, the most bullish in seven months. Longs inched up 0.1%; shorts fell 4.5%. The net-long position on benchmark U.S.  gasoline fell 7% to 107,198 contracts, the lowest in a month. Net diesel positions were slashed by 81%, to the least bullish in five weeks.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Carlos Caminada