Speculators have been increasing their bets that oil prices will rise, setting up a punishing outcome if OPEC's production cuts disappoint, Again Capital founding partner John Kilduff said Thursday.
OPEC not only faces the challenge of getting its own members to deliver the promised cuts. It must also contend with potentially weaker demand in China and the threat of rebounding U.S. production, Kilduff said.
"The boat is loaded to one side in the market right now. Shorts have covered. People have piled in from the long side, waiting for these cutbacks to come through. If they don't, there's going to be big punishment in this market," he told CNBC's "Squawk Box."
Members of the Organization of the Petroleum Exporting Countries are scheduled to begin cutting production next week, and other producers have committed to reducing their output in the first half of 2017. The producers are aiming to reduce huge stockpiles of oil that built up after a boom in production caused in large part by a revolution in U.S. drilling.