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Hedge funds are selling %Oil stocks and options contracts at the fastest pace in a year on signs that global demand for crude is weakening, and as the war risk premium that had elevated prices in recent months disappears.

Hedge funds have sold the equivalent of 143 million barrels of crude oil since May 1 as they sour on the energy sector.

Data from the U.S. Commodity Futures Trading Commission shows that sentiment towards crude oil and energy stocks has turned bearish after being strongly bullish at the start of April.

Since the start of May, hedge fund managers have been selling options contracts tied to both Brent crude oil, the international standard, and West Texas Intermediate (WTI) crude oil, the U.S. benchmark.

The sales come as the price of Brent crude oil slumps to $81.50 U.S. per barrel, while WTI crude oil’s price has fallen to $77.25 U.S. a barrel.

Earlier this year, both crude oil prices were trading above $85 U.S. per barrel.

Persistent growth in U.S. crude production has led to high inventory levels in America even as evidence points to the economy starting to slow.

At the same time, energy demand in China remains tepid as that country’s economy continues to struggle coming out of the Covid-19 pandemic.

Oil prices are also retreating as the conflict in the Middle East moves into a new phase and attacks on oil shipments in the North Sea end.

Coupled with signs of over-production in the U.S., the current situation has turned hedge fund managers and traders against the energy sector for the time being, say analysts.

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