• Hedge funds increased short bets on crude oil to the highest level in nearly five months, signaling expectations of higher global supply.
  • Bearish positioning also rose in diesel markets as concerns over supply growth outweigh demand expectations.
  • Easing U.S.-Iran tensions and increased Iranian exports are key factors pressuring prices.

Short Bets Surge

Hedge funds have ramped up short positions on crude oil to levels not seen since early June, according to data from the Commodity Futures Trading Commission. The shift reflects growing expectations that global supply will outpace demand, driven by potential increases in Iranian exports and smoother traffic through the Strait of Hormuz after a period of heightened tensions.

“Traders are pricing in a higher probability of additional supply hitting the market,” said a senior commodities analyst at a major investment bank. “The risk premium that had been supporting prices is fading.”

The net short position in Brent and WTI futures and options combined rose by 34,000 contracts in the week ended Oct. 24, reaching the most bearish stance since late May.

Diesel Also Under Pressure

Bearish bets extended to diesel markets, where hedge funds increased short holdings as concerns about ample supply trumped expectations for seasonal demand. Distillate inventories in the U.S. have been building faster than usual for this time of year, with refinery runs remaining robust.

“The diesel market is showing signs of weakness, and funds are positioning for further downside,” noted a portfolio manager at a hedge fund focused on energy. “Unless we see a sharp pickup in demand or a supply disruption, the bearish trend could persist.”

Broader Implications

The surge in short bets comes as OPEC+ prepares to meet next month to discuss production targets. A potential increase in quotas could further pressure prices, though some analysts caution that the market is already pricing in a gloomy outlook.

“If the news flow shifts—say, a sudden outage or a stronger-than-expected demand print—we could see a sharp short-covering rally,” said another trader. “But for now, the momentum is clearly bearish.”

Attempts to reach the International Energy Agency (IEA) for comment were unsuccessful.

Correction: An earlier version of this article misstated the timeframe for the CFTC data; it has been updated to reflect the most recent week.