A relatively small group of hedge fund managers has placed a record bet on U.S. oil prices declining further in the months ahead.

Hedge funds and other money managers had accumulated gross short futures and options positions totalling 163 million barrels in the main NYMEX light sweet crude contract by Aug. 11, according to data released by the Commodity Futures Trading Commission.

The number of gross short positions was up from 59 million barrels on June 2 and closing in fast on the record 179 million barrels set back in March.

The number of traders identified by the CFTC as having shorts above the reporting threshold has actually fallen slightly over the same period, from 60 to 57.

The number of hedge funds with reported short positions is not especially high and well below the record 84 identified in March.

But the average short position has almost tripled since June, from under 1 million barrels to almost 3 million, a record and nearly twice the 1.6 million barrels reported in March (http://link.reuters.com/kyn45w).

The CFTC data is anonymised to prevent identification of individual traders so it is not possible to know whether the 57 traders with large short positions last week were the same ones as at the beginning of June or a different group.

However, it seems safe to assume a relatively small group of hedge funds have made large mark-to-market profits on short positions established more than two months ago which they have yet to close out.

The existence of large mark-to-market gains provides a cushion enabling hedge funds to ride out a small and short-term rise in oil prices, if they choose to do so.

The shorts are betting continued oversupply, the resilience of U.S. shale production, the end of the summer driving season and autumn refinery maintenance will depress WTI prices further.

But at some point these funds will have to buy back a good proportion of their short positions to book the profits. When they do, U.S. crude prices are likely to rise substantially.

Experience shows the accumulation and liquidation of both long and short positions in WTI by hedge funds is cyclical and closely correlated with the rise and fall in prices (http://link.reuters.com/fyn45w).

The question is when and at what price the funds start to buy back their short positions, and whether the trigger is fundamental news or a change in sentiment/strategy.