Brent crude has just endured its most brutal weekly decline on record, with the geopolitical risk premium almost entirely erased.
Just eight days ago, on October 30, front-month Brent crude was still touching a high of US$118, with the market broadly expecting Middle East tensions to escalate further after the midterm elections. Instead, a Democratic sweep of Congress, diplomatic signals from Trump, and a mediation call with Qatar all landed in quick succession, dragging Brent to below US$98 by the close of the week. According to Reuters, citing London Stock Exchange Group (LSEG) data going back to 1988, this was the largest single-week decline in Brent crude in dollar terms ever recorded.
Hedge funds were the main drivers of this selloff. According to an analysis of US Commodity Futures Trading Commission (CFTC) positioning data by Robert Quinn, Managing Director in Goldman Sachs' FICC and Equities division, in his latest "Energy Futures" report, managed money net sold Brent crude positions worth as much as US$6.6 billion between October 27 and November 3 — the seventh time in the past five years that weekly selling exceeded US$6 billion — while oil prices fell 5.3% over the same period. Long liquidation accounted for US$4.9 billion, roughly three-quarters of total selling, with new short positions playing only a minor role.
It is worth noting that the CFTC positioning report covers the window through November 3 (Tuesday), meaning the US$6.6 billion figure does not yet include the 8.7% single-day plunge in Brent crude on Wednesday, election day itself. Next Friday's positioning report is expected to look even worse.
Longs forced to flee as positioning buildup sowed the seeds of trouble
The intensity of this selloff is closely tied to how heavily positioned the market had been beforehand.
Quinn's positioning charts show that managed money net longs had rebuilt to around US$28 billion in October, before plummeting to roughly US$19 billion by November 4, with Brent crude falling from just above US$110 to the high US$90s within days. By comparison, in April this year, when the Iran war premium was at its most euphoric, the same group of funds held net longs exceeding US$45 billion.
Commodity trading advisors (CTAs) were also deeply caught up in it. Entering this crash, CTAs held substantial crude oil longs. Goldman Sachs' systematic strategies team noted in a Friday report that trend-following strategies suffered a "major trend break" in early November, with bonds rising, equities falling, and crude declining — three reversals happening simultaneously. Its fixed-volatility trend strategy was down 5.14% month-to-date as of November 5, while petroleum products had been the largest long signal in that strategy's book at the end of October.
Goldman Sachs' CTA momentum chart shows short-term trend signals have fallen below zero — the first negative reading since August — triggering additional systematic selling. Medium- and long-term signals remain positive but are deteriorating at an accelerating pace. More concerning still, Goldman's CTA downside convexity analysis shows that stop-losses have been triggered, but given the speed of the price collapse, a large volume of systematic sell orders may not yet have been fully executed.
Election results proved the final straw for longs
Before the election results even came out, diplomatic signals had already begun to shake the market. According to Quinn's report, Trump was reported to favor negotiation over military strikes, and Iran's Supreme Leader Khamenei authorized the president to pursue dialogue, sending Brent crude lower on November 2, with rebound attempts the following morning also failing.
The midterm election results then became the final straw. Quinn wrote: "The Democratic sweep triggered a narrative that Trump's agenda would be constrained, particularly funding for overseas military operations and other foreign policy commitments." Brent crude plunged 8.7% in a single day on November 4, with open interest falling by US$2.7 billion.
This process displayed a classic structure of "active funds leading, trend-followers passively following": discretionary hedge funds sold first, and CTAs then joined in passively.
Historical precedent: the two weeks after a crash remain the darkest hour
After large-scale selloffs, the market typically goes through a sustained period of digestion. Quinn reviewed history since last year's so-called "reciprocal tariff day" and found that after the previous three instances of similarly sized managed money selling in Brent crude, negative fund flows persisted for about two weeks. The most typical case was after the signing of the US-Iran Memorandum of Understanding (MOU) in June 2026 — by then the market had already priced in expectations in May for a Hormuz Strait agreement, Brent posted its largest monthly decline in six years, the MOU landed in June, yet the war continued for another five months.
There is, however, one powerful counterexample in history: between May 28 and June 4, 2024, hedge funds sold US$7.9 billion of Brent crude after OPEC announced the end of "voluntary" production cuts. OPEC ministers then publicly pushed back against the market reaction, and managed money net longs recovered fully soon after. Quinn noted that the precondition for this rapid reversal was that "policymakers stepped in to tell the market it had overreacted."
Some in the options market have already started buying calls
Despite pressure in the spot market, the options market is already flashing signals worth watching.
Quinn noted in his report that Brent crude rebounded 3.9% on November 5-6, while 3-month implied volatility rose, the 25-delta put-call skew narrowed, and call options were bought back. This combination of signals suggests some traders are already positioning for the return of the war premium.
UBS's Dominic Ellis also issued a warning on Thursday, arguing that "fundamentals still provide support," pointing out that the drawdown of nearly 700 million barrels in global inventories will not automatically reverse just because Congress changed hands, and saying the market has repeatedly priced in de-escalation prematurely over the past seven months. "I worry the same thing may be happening again now," he said.
On the physical side, crude supply is flowing back from the Gulf region, and the Dubai benchmark has slipped into contango for the first time since July, giving shorts some support. But according to Reuters, citing UK Maritime Trade Operations (UKMTO) data, the frequency of attacks on tankers remains near historic peaks, and Iran's top security official insists the Strait of Hormuz will remain closed until Washington meets all seven of Tehran's conditions.
Separately, Goldman Sachs' Rich Privorotsky noted that gold has become the inverse trade to crude oil — on the day Brent crashed, gold rose more than 3%. If the crude war premium returns, gold may give back some of those gains.
"We're not at war" — but strikes resumed Friday night
Just as the market was digesting all of the above, a new twist emerged.
According to CCTV News, Trump spoke by phone with the Emir of Qatar on Friday to discuss a "comprehensive agreement to end the regional crisis." However, hours later, the White House confirmed a new round of "small-scale" strikes on air defense facilities on Iran's Qeshm Island — the first military action authorized by the president since the election. Trump said: "They built a small air defense system, and we destroyed it in about 15 minutes, maybe 5 minutes," adding that "we're not at war."
For a market that had just sold US$6.6 billion on the grounds of "war de-escalation," a weekend airstrike is precisely the kind of policy signal that could turn the previous liquidation into a short squeeze — just as the 2024 case showed.
Next Friday's CFTC positioning report will capture Wednesday's crash and the CTA momentum flip, and the data is bound to look ugly. But structurally, positioning has been heavily cleared out, the options market is buying calls, and the "peace process" itself has arrived alongside airstrikes.
Brent crude's war premium was priced out in a week at the fastest dollar pace in history — and the speed at which it gets priced back in may be just as fast.
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