Hedge funds raise bullish oil exposure as Iran conflict threatens Hormuz flows

Hedge funds have significantly increased their bullish stance on oil prices due to the escalating conflict between the US and Iran, which threatens oil shipments through the Strait of Hormuz, according to Bloomberg. Money managers raised their net-long Brent crude position by 37,837 contracts to 261,435 in the week ending September 1, the highest level in over three months.

This surge in bullish positioning also extended to US crude, with net-long exposure reaching its highest since June. The shift in trading activity is attributed to the ongoing US military strikes and Iranian retaliation, which have complicated efforts to resume shipping through the critical Strait of Hormuz, a vital energy passage.

Iran's persistent threats against vessels using the waterway have further disrupted tanker traffic, which was beginning to recover. The heightened geopolitical tensions have raised concerns about potential shipping restrictions, keeping a significant risk premium embedded in crude prices. Hedge funds are now betting that the geopolitical situation will support oil prices, contrasting with the earlier period of caution in crude trading.

The Strait of Hormuz remains the focal point of these expectations, as any sustained reduction in traffic could tighten global oil supplies and drive up prices. Refined products have also seen a sharper rally, with hedge funds' net-bullish positioning in diesel hitting its highest level since March. The rising concerns over fuel supply disruptions are reflected in US retail diesel prices, which reached a record $5.85 a gallon, underscoring the immediate impact of crude and refined-product supply disruptions on consumers.