LONDON - Investors purchased small volumes of petroleum last week, after exceptionally heavy sales the week before, squaring up short positions after an unusually sudden and steep pull back in prices on recession fears.

Hedge funds and other money managers purchased the equivalent of 8 million barrels in the six most important petroleum futures and options contracts in the week to July 12.

That came after cumulative sales of 201 million barrels over the previous four weeks, culminating in sales of 110 million in the week to July 5, according to ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

The most recent week saw a reduction in both bullish long positions (-19 million barrels) and bearish short ones (-27 million) as portfolio managers reduced risk exposure after exceptional volatility.

The disproportionately large reduction in short positions implies some profit-taking after prices dropped almost $25 per barrel over the previous four weeks in response to heightened fears about a recession dampening oil demand.

Inflation is running far above target across North America and Western Europe, making it likely the major central banks will continue tightening monetary policy into the early stages of a cyclical downturn, hitting oil demand.

The most recent week saw purchases of NYMEX and ICE WTI (+15 million) but sales of Brent (-3 million) and European gas oil (-5 million) and only minor changes in U.S. gasoline (+1 million) and diesel (+0.2 million).

The combined position in middle distillates (diesel and gas oil) has fallen in each of the last four weeks by a total of 21 million barrels, or 38%, since June 14.

Distillates are the most cyclically sensitive part of the oil market, and positions, prices and crack spreads have all fallen sharply as traders anticipate a significant slowdown in the business cycle or even a recession.

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

(Editing by Bernadette Baum)