Investors Start Doubting Recent Oil Rally

The oil market’s failure to break out of the tightest range in more than a decade is sapping investor interest.

After hitting a record high last week, hedge funds reduced wagers that US oil prices would rise as concern grows that the market is again becoming vulnerable to a drop. Earlier bullish sentiment was based on optimism that OPEC production cuts would ease supply gluts. Now record US crude stockpiles are raising doubts about that outlook, Bloomberg reported.

"They’ve gone so far on hopes and dreams," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said. "I’m worried they’ve overdone it, since we haven’t seen much happen with measures that would support the market."

The Organization of Petroleum Exporting Countries’ deal with 11 other major producers to reduce output spurred a 17% rally in US oil prices during the last five weeks of 2016. This year, the rally has stalled as American production and supplies advance. West Texas Intermediate bounced between $51.22 and $54.94 in February, the tightest range since August 2003.

Hedge funds trimmed their net-long position on WTI, or the difference between bets on a price increase and wagers on a decline, by 6.5% in the week ended Feb. 28, US Commodity Futures Trading Commission data show.