The Iran conflict has triggered a near-two-week shutdown of the Strait of Hormuz, putting sudden pressure on one-fifth of global oil supplies. Hedge funds have aggressively entered the market, with net long positions in Brent crude oil surging by over 65,000 contracts in a single week to reach 351,032 contracts, hitting a six-year high. Bullish bets on U.S. crude oil simultaneously rose to an eight-month peak. Oil-producing nations have been forced to cut production, while refiners face contract breaches. Volatility has spiked to its highest level since the Russia-Ukraine conflict, as the market recalibrates for a supply crisis that far exceeds expectations.
Hedge funds had pushed bullish bets to their highest level in six years ahead of what would become the most volatile week in the history of the crude oil market.
According to data from ICE Futures Europe cited by Bloomberg on Saturday, asset managers increased their net long positions in Brent crude by 65,438 contracts to 351,032 contracts as of March 10, the highest since February 2020. Meanwhile, bullish bets on U.S. crude also rose to an eight-month high, according to data from the Commodity Futures Trading Commission (CFTC).
Traffic through the Strait of Hormuz has been nearly at a standstill for almost two weeks. Under normal circumstances, this passage carries about one-fifth of the world’s oil supply, and its prolonged disruption has caught many market participants off guard—many had anticipated that joint U.S.-Israeli actions would be akin to a precise surgical strike.
The shockwaves rippling through energy markets have forced several major oil-producing countries in the region to cut production, while some refiners have begun defaulting on contracts.
Bullish bets surged to a six-year high.
The near-shutdown of the Strait of Hormuz triggered by the Iran conflict has completely disrupted market expectations, unleashing the most severe volatility in commodity markets since the Russia-Ukraine conflict.
In this volatile environment, hedge funds aggressively entered the market. Net long positions in Brent crude rose by more than 65,000 contracts in a single week to reach 351,032 contracts, the highest level since February 2020. Meanwhile, bullish bets on U.S. crude also climbed to an eight-month high, signaling that bullish sentiment has spread across the two major global benchmark contracts.
The outbreak of the Iran war served as the core driver of this round of speculation. The Strait of Hormuz, a critical global energy chokepoint, typically handles about one-fifth of the world's daily oil supply under normal conditions. Its near standstill over the past two weeks has transformed market concerns over potential supply disruptions from perceived risks into tangible shocks.
Supply-side pressures weigh on both oil producers and refiners.
Supply-side pressures have spilled over from paper markets into physical markets. As storage capacities approach saturation, multiple major oil-producing nations in the region have been forced to cut output. At the same time, some refiners have started defaulting on contracts, further intensifying supply chain strains.
This situation represents a significant divergence from the market's previous general expectations. Most participants had anticipated that the joint U.S.-Israeli military action would be brief and precise, underestimating the risk of prolonged supply disruptions. The evolving reality has forced the market to reassess the geopolitical premium.
Surging volatility pressures algorithmic traders and the options market
In the derivatives market, several volatility indicators have risen to their highest levels since the outbreak of the Russia-Ukraine war. Algorithmic traders have increased their long positions to the upper limit, while reduced risk exposure by market makers has significantly dampened options trading activity.
Both sides of the market are moving in tandem: crude oil producers are rushing into the market to lock in future revenues, while the consumer side is witnessing panic-driven hedging demand, scrambling to purchase protective positions to guard against further spiraling oil price increases. This dual-direction buying pressure has further amplified the directional momentum and volatility of the market.
Editor/Lee
