Oil prices were modestly higher on Monday morning, but a dubious milestone among energy traders may prove to be a prescient warning about another major pullback in oil prices.

As Reuters reports, speculation is running rampant, with bullish bets on oil hitting fresh all-time highs:

Investors raised their bets on rising Brent crude oil prices to a new high last week, data from the InterContinental Exchange showed on Monday, breaking the 500,000-lot mark for the first time on record. [O/ICE]

It’s not just energy traders, either. Even “smart” money is dangerously long oil:

Money managers also raised their bullish U.S. crude futures and options positions in the week to Feb. 21 to the highest on record, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

In total, investors are holding over 951,000 lots’ worth of U.S. and Brent crude oil options and futures. That’s equivalent to almost a billion barrels of oil, and is valued at around $52 billion.

At least one analyst is issuing a stern warning about the irrational bullish bets:

“With speculators increasing their bullish bets on U.S. crude to an all-time high, the risk of disappointment and subsequent downward spiral in prices has never been greater,” oil brokerage PVM’s Stephen Brennock said.

It’ll be very interesting indeed to see how these bets play out over the next several weeks, as any weakness in oil prices could lead to a massive unwinding of major positions — and significantly more downside.

On the ETF side of things, the United States Oil Fund LP ETF (NYSE:USO) was trading at $11.50 per share on Monday morning, up $0.04 (+0.35%). Year-to-date, USO has declined -1.88%, versus a 6.00% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #46 of 121 ETFs in the Commodity ETFs category.

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