(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

Hedge funds added more bullish positions in crude and fuels in the most recent week in the expectation that positive trade talks between the United States and China would keep the global economy expanding.

Saudi Arabia’s substantial output cuts and U.S. sanctions on Iran and Venezuela also are restricting crude supplies and helping eliminate a previously expected surplus in the market in 2019.

Hedge funds and other money managers were net buyers of Brent crude futures and options equivalent to 9 million barrels in the week to Feb. 19, data from ICE Futures Europe showed.

Portfolio managers have been net buyers of Brent in 10 of the last 11 weeks, increasing their overall bullish position by a total of 139 million barrels since Dec. 4

But funds have become only moderately bullish on crude, with long positions outnumbering short ones by a ratio of less than 6:1 compared with as much as 12:1 or even 20:1 at times between 2016 and 2018.

Fund managers were also net buyers of another 10 million barrels of European gasoil futures and options in the week to Feb. 19, for the seventh week running, buying a total of 49 million barrels since the end of 2018.

As with crude, however, investors have become moderately bullish on the outlook for middle distillates such as gasoil, diesel and jet fuel.

Funds hold seven bullish long positions for every bearish short one, up from a ratio of 1:1 at the turn of the year but still far below the 31:1 ratio at the start of October.

The relatively cautious positioning in both crude and fuels likely reflects substantial uncertainty about the economic outlook for the rest of the year and into 2020.

Trade negotiations between the United States and China appear to be making progress and the deadline for additional tariffs has been pushed back.

But global growth has slowed significantly and there is no guarantee a successful outcome to the trade negotiations will be enough, on its own, to reinvigorate flagging economic activity.

As oil prices rise towards $70 and above, there is also an increasing probability shale production will accelerate again in the United States, or of renewed political pressure from the White House on Saudi Arabia, capping the price rally.