Hedge Funds Sell Crude Fastest in Eight Months

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"The latest selloff is confirmation that money managers are exiting. . ."

Hedge funds sold oil at the fastest pace in almost eight months, cutting their bullish bets by 32% as crude prices plunged on concern Europe's debt crisis will hurt energy demand.

The speculative net-long position in crude oil futures and options combined on the New York Mercantile Exchange fell to 89,335 in the week ended May 18, the biggest percentage decline since Sept. 29, according to the U.S. CFTC's Commitments of Traders Report on May 21.

Crude dropped 20% from a 19-month high of $87.15/barrel May 3 on concern Europe will undermine a recovery from the worst recession since WWII. Supplies of oil and all petroleum-based fuels jumped to 1.81 billion barrels in the week ended May 14, the highest stockpiles on a seasonal basis based on Energy Department data back to 1990.

"Wall Street was bailing out of the market," said Stephen Schork of the Schork Group Inc. "The latest selloff is confirmation that money managers are exiting. I expect next week's report will show another significant selloff."

Crude oil for July delivery rose as much as 61 cents, or 0.9%, to $70.65/barrel on the New York Mercantile Exchange, and was at $70.33 at 11:09 a.m. in Singapore. Today's gain snapped a nine-day losing streak for the July contract, during which it shed 13%.

If hedge funds and other large speculators can push prices below so-called support at $67$68 a barrel, then oil may plunge as low as $60$62 a barrel, Schork said. If crude fails to get below $67, then prices may rebound into the mid $70s a barrel, he said.

"We know that fund managers are liquidating length," Schork said. "The question now is will they start building up a short position and try to push this market down further."

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