Oil rises towards top of recent trading range as OPEC cuts output

By Christopher Johnson

LONDON (Reuters) - Oil rose on Tuesday after exchange data showed hedge funds placing record bets on North Sea and U.S. crude as OPEC production cuts tightened supply.

Benchmark Brent futures were up 50 cents at $56.58 a barrel by 0930 GMT. U.S. light crude was up 50 cents at $53.90, having risen by about 0.5 percent in a shortened session on Monday because of a U.S. national holiday.

Money managers now hold the highest volume of net long Brent futures and options on record, InterContinental Exchange data showed on Monday, betting on higher prices to come as OPEC and other key exporters reduce production.

Net long U.S. crude futures and options positions are also at a record high, U.S. data showed on Friday.

Members of the Organization of the Petroleum Exporting Countries and other producers outside the group agreed in November to cut output by about 1.8 million barrels per day (bpd) in an effort to drain a global glut that has depressed prices for more than two years.

So far OPEC appears to be sticking to the deal and production has been falling, with speculative investors moving into the market in increasing numbers.

Brent and U.S. crude have both moved towards the top of recent trading ranges, raising some concern that prices could fall quickly if this speculative money leaves the market.

"This prolonged and increasing overcrowding of speculative net longs should be a cause for concern," said Jonathan Chan, an investment analyst at Phillip Futures.

"Should there come a time when these speculative positions decide to unwind, oil prices will be in for a significant correction."

Despite signs that OPEC's agreement is holding, inventory levels are still very high in many parts of the world.

U.S. crude oil and gasoline inventories soared to record highs last week as refineries cut output and gasoline demand softened. [EIA/S]

More evidence of the state of the U.S. oil market will come on Thursday when the U.S. Department of Energy publishes stocks figures. Those numbers could be a catalyst for a market move, said Carsten Fritsch, analyst at Commerzbank in Frankfurt:

"Until then, lack of bearish news seems to be enough to push prices higher," Fritsch said.

(Additional reporting by Aaron Sheldrick in Tokyo; Editing by David Goodman)