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Oil Short-Sellers Make a Wrong-Way Bet as China Blindsides the Market

Carlos Caminada and Sheela Tobben
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Oil Short-Sellers Make a Wrong-Way Bet as China Blindsides the Market

(Bloomberg) -- It’s getting tougher to bet on oil in the age of Trump trade tweets and Chinese retaliation, with hedge funds getting it wrong for a seventh time in nine weeks.

This time around, short-sellers made their biggest retreat in a year in the week ended Aug. 20, slashing by 25% their wagers that West Texas Intermediate crude would decline, data released Friday show. That made sense as the U.S. had just delayed sanctions against Huawei Technologies Co., offering a rare hint of progress in the trade spat that has dogged the market.

Then on Friday, optimism unraveled as China announced tariffs on U.S. oil for the first time, sending futures plunging and wiping out all of the week’s gains. The whipsawing has plagued the market all year, but it seems to be getting more unpredictable. Before the last week of June, hedge funds got the direction of crude wrong just seven times in six months.

“I don’t think they saw it coming,” said Rob Thummel, managing director at Tortoise, a Kansas firm that oversees more than $16 billion in energy assets. “Everybody thought that this trade war could have been settled.”

Short-sellers probably didn’t want to take their chances in case the Saudis came back with statements about adjusting supplies to bolster prices, he said.

Net-length in WTI -- the difference between wagers on an increase and those on a decline -- rose 3.2% to 206,842 options and futures, the U.S. Commodity Futures Trading Commission said. Long-only bets fell 3.9%.

To contact the reporters on this story: Carlos Caminada in Calgary at ccaminada1@bloomberg.net;Sheela Tobben in New York at vtobben@bloomberg.net

To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net, Joe Carroll, Catherine Traywick

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