New York (HedgeCo.net) – The price of crude oil closed last week at $35.36 per barrel and that is the lowest weekly closing price since February 2004. The selling deepened after OPEC failed to reach any sort of consensus on a production cap at the organizations most recent meeting and that is allowing each country to produce as much oil as they want.

Hedge funds have been shorting oil over the past few months and they have continued to increase those short positions as the price has fallen. According to a recent article from Reuters, hedge funds are now short the equivalent of 364 million barrels of oil and that is a new record short position, eclipsing the previous record of 325 million barrels. The current short total has increased 126% since mid-October while the price has fallen approximately 30%.

While momentum is clearly on the side of the bears right now, with such a huge short position, there is risk in shorting more or entering a new short position at this point. Should prices start to rise and those bearish hedge funds and other short sellers cover their positions, it could add tremendous buying pressure and cause prices to spike sharply.

Rick Pendergraft
Research Analyst
HedgeCoVest