Hedge funds have reached their most optimistic stance on Brent crude in six years as the oil market begins one of its most volatile weeks in history. According to weekly data on futures and options from the Intercontinental Exchange, money managers increased their net-long positions in the global benchmark crude by 65,438 contracts to 351,032 in the week ending March 10. This marks the highest level since February 2020. Concurrently, data from the U.S. Commodity Futures Trading Commission indicates that bullish bets on U.S. crude have also climbed to an eight-month peak. The surge in bullish oil positions coincides with the near-total halt of shipping through the Strait of Hormuz for nearly two weeks due to the Iran conflict. This critical chokepoint typically handles about one-fifth of the world's oil supply. The prolonged disruption has caught market participants off guard, as many had previously anticipated a swift, targeted military action. The severe impact on energy markets has forced major crude producers in the region to cut output as storage capacity reaches its limits, while some refiners have defaulted on contracts. In paper markets, several volatility indicators have surged to their highest levels since Russia's invasion of Ukraine. In response, algorithmic traders have increased long positions to their maximum limits, while options trading has shrunk as dealers reduce their exposure. Oil producers have rushed to lock in future revenue, and consumers, driven by panic, have been frantically purchasing hedging instruments to protect against soaring prices.
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