LONDON, April 22 (Reuters) - Investors boosted their

exposure to Brent as the conflict between Iran and Israel

escalated but there was selling across the rest of the petroleum

complex amid doubts about the sustainability of higher prices.

Hedge funds and other money managers sold the equivalent of

23 million barrels in the six most important petroleum futures

and options contracts over the seven days ending on April 16.

Purchases of Brent (+31 million barrels) were more than

offset by sales of NYMEX and ICE WTI (-35 million), U.S.

gasoline (-5 million), U.S. diesel (-5 million) and European gas

oil (-9 million).

Brent is most exposed to production and shipping disruptions

as a result of conflict in the Middle East and fund managers

boosted their net position to 335 million barrels (75th

percentile for all weeks since 2013).

But much of this additional exposure seems to have rotated

out from WTI, where funds sold at the fastest rate for 10 weeks

and the net position was trimmed to just 183 million barrels

(31st percentile).

While fund managers had become strongly bullish on Brent

they were increasingly bearish about prospects for WTI.

In the premier NYMEX WTI contract, there was evidence of a

fresh cycle of short selling, which had started four weeks

earlier when prices climbed above $80 per barrel.

Fund managers had boosted short positions equivalent to 71

million barrels by April 16, up from 23 million on March 19.

Chartbook: Oil and gas positions

In refined fuels, previous bullishness about a continued

depletion of inventories and a further rise in prices had also

started to ebb away.

The hedge fund community is broadly bullish about the

outlook for both crude and fuel prices but not with much

conviction.

Bullish long positions outnumber bearish short ones by a

ratio of 3.60:1 which is in only the 42nd percentile for all

weeks since 2013.

There are upside risks from Middle East conflict, production

restraint by Saudi Arabia and its OPEC+ allies, and a cyclical

economic upswing in the United States

But these are offset by downside risks from strong growth in

non-OPEC output, persistent inflation, higher-for-longer

interest rates, and a desultory economic recovery in Europe and

China.

Escalating conflict between Israel and Iran has masked a

slight deterioration of investor sentiment about the outlook for

oil prices in recent weeks.

Once the conflict appeared to have been contained, with

Israel's limited retaliation against Iran, prices have

retreated.

U.S. NATURAL GAS

Investors turned more bearish towards U.S. natural gas as

the seasonal inventory surplus continued to swell and stocks

climbed near to a record high for the time of year.

Hedge funds and other money managers sold the equivalent of

173 billion cubic feet (bcf) in the two most important futures

and options contracts linked to prices at Henry Hub in

Louisiana.

The rate of selling was the fastest for eight weeks since

mid-February, before some of the largest producers announced

they would be scaling back drilling and production.

As a result, funds held a net short position of 483 bcf

(19th percentile for all weeks since 2010) versus a net short of

310 bcf (25th percentile) the week before.

Working gas inventories amounted to 2,333 bcf on April 12,

the highest for the time of year since 2016 and before that

2012.

Inventories were an enormous 641 bcf (+38% or +1.38 standard

deviations) above the prior ten-year average and the surplus

shows no sign so far of narrowing despite prices close to

multi-decade lows in real terms.

In December, the latest month for which data is available,

power generators paid the lowest seasonal prices for gas since

1974, after adjusting for inflation. Since then, the real

acquisition cost has likely fallen even further.

But the warmest winter on record has depressed consumption

of both gas and electricity, ensuring that inventories have

remained exceptionally high and postponing any rebound in

prices.

Related columns:

- Oil traders sanguine about risks from Israel-Iran conflict

(April 18, 2024)

- Oil funds were bullish even before Iran launched missiles

(April 15, 2024)

- Investors bet on further rise in U.S. gasoline prices

(April 10, 2024)

- Oil funds turn bullish as Mideast conflict intensifies

(April 8, 2024)

John Kemp is a Reuters market analyst. The views expressed

are his own. Follow his commentary on X https://twitter.com/JKempEnergy

(Editing by Mark Potter)