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Hedge funds reduce long oil positions by 40% Add to ...

On the heels of a sharp drop in oil prices , hedge funds around the world have reduced their long positions in crude by a whopping 40 per cent since early March, according to data compiled by the Commodities Futures Trading Commission and Societe Generale.

The long positions peaked on March 8 of this year, with about 280,000 contracts. (Each contract provides the right to buy 1,000 barrels.) Today, the long positions total about 160,000. Over that same period, oil has gone from about $100 (U.S.) a barrel, all the way up to around $112 and then back down to about $95.

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In other words, fewer hedge funds are betting on another big run up in prices soon. Contrarily, they have stayed long precious metals, particularly gold . Over the past year, long contracts on gold have fallen only slightly.

However, the reduction oil positions doesn't mean hedge funds are abandoning the commodity. In fact, many are still buying, just with less fervour. And they have good reason to keep buying, notes Societe Generale commodity analyst Michael Wittner.

The global economic recovery is expected to get back on track in the second half of the year, and non-OPEC oil supply is expected to slow. That puts OPEC in the driver's seat, and the group isn't expected to increase production by any large amount.

Follow on Twitter: @timkiladze

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