Hedge Funds Bullish Oil

Hedge Funds Back to Being Bullish on Oil

Hedge funds are resuming bullish bets on the price of oil amid instability in the Middle East--particularly growing tension with Iran--and expected rising US demand. A worsening dispute with Iran and signs of a recovering US economy have led many hedge funds to bet on a increase in the price of oil. The shift comes after hedge funds largely exited the oil market in the final months of 2011.

Hedge funds that exited oil markets late last year have begun boosting bullish bets as tensions with Iran and reports of U.S. economic growth sent crude to the highest price since May.

The funds increased bullish positions 4.1 percent in the week ended Jan. 3, according to the Commodity Futures Trading Commission's Commitments of Traders report. Open interest advanced 3.5 percent, rising for a second week after falling in December to the lowest since May 2007, according to the CFTC.

While the 8.4 percent increase in oil last year marked the smallest annual move since 2006, the swing proved too much for some money managers as Europe's sovereign debt crisis pushed prices down to $75.67 a barrel before rising to $103 as Iran threatened to block the Strait of Hormuz. Clive Capital LLP's $4 billion commodity hedge fund told clients in November that they moved to cash because commodities had become too volatile, according to two people with direct knowledge of the firm's performance.
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