New York (HedgeCo.net) – Even as the price of oil has stayed below $50 for four months now, hedge funds and other institutional investors have become more bearish on the commodity. In fact, the number of contracts sold short has increased by 70 percent since mid-October and the short positions are the highest they have been since August.

According to a recent report from Reuters’ market analyst John Kemp, the latest commitment of traders report shows short positions equivalent to 154 million barrels of crude. The article also stated that 69 different hedge funds have short positions of at least 350,000 barrels, so the bearish sentiment is fairly widespread and that is the most funds with such a high number of short positions since April.

Crude would appear to have some support in the $40 range, but inventories have continued to build over the course of the year and that has led to the bearish sentiment. From a contrarian perspective, this extreme level of bearishness could be a sign that oil is set to rally. There were large bearish positions built up in August and March as well and in each instance, oil managed a rally.

Rick Pendergraft
Research Analyst
HedgeCoVest