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Global hedge funds slowed their selling of crude futures in the second week of November and now appear behind the curve.

This sets up a huge week and the distinct possibility of further weakness in the commodity price and a compelling buying opportunity for patient investors in the domestic energy sector.

The U.S. Commodity Futures Trading Commission publishes a weekly report on commodity futures positioning that is a valuable resource for investors. In the case of crude oil, the report is split into two categories. The first is "commercial positioning," which summarizes the futures exposure of energy producers and refiners. In general, these companies are using futures to protect themselves from the effects of potential volatility in the value of their inventories.

The second category is "non-commercial net futures positioning," which is used as a proxy for hedge fund bets on commodity prices. Changes in the non-commercial or hedge fund positioning can have large effects on the commodity price and by extension, energy stocks.

The accompanying chart compares aggregate hedge fund positioning (number of contracts betting on a rise in the WTI crude price minus contracts betting on a decline) with the commodity price.

SOURCE: Scott Barlow/Bloomberg

From June, 2014, to October, the hedge funds led the crude price lower, rapidly removing long exposure (bets on rise in crude price) ahead of the falling commodity price. Starting in the second week in November, however, the selling pressure eased significantly while the oil price continued to fall.

Based on the chart, there is a risk that a final selloff in futures markets may cause another leg down for the commodity price. Murray Edwards, chairman of Canadian Natural Resources Ltd., has even suggested a temporary price downdraft to $30 (U.S.).

Most experts, including Mr. Edwards, believe that the North American oil price will eventually stabilize in the $70 per barrel range. Loosely, this is the price where shale production is profitable. If the price is above this level, U.S. shale production continues and there is ample supply.

The oil price can't stay below $70 for long. Unprofitable shale production slows, which reduces supply and puts upward pressure on the commodity price.

For the next few weeks, Canadian investors should be watching for the final "washout" in the energy prices as the hedge funds give up and unwind their long positions to match the commodity price movements since mid-November. With consensus pointing to an eventual stable oil price in the $70 range, another downward move should prove a lucrative entry point for stocks of high quality Canadian oil producers.

Follow Scott Barlow on Twitter @SBarlow_ROB.