U.S. sanctions on Russian oil companies subverted market expectations, causing hedge funds with large short positions to miss out on the rising market.

Hedge funds holding record short positions in Brent crude oil failed to take advantage of this week's price rally. According to data from the ICE Futures Europe, fund managers increased their bearish positions on Brent crude, the global benchmark oil price, by 40,233 contracts to a total of 197,868 contracts, reaching a historic high. Previously, more and more evidence had indicated that the long-awaited oversupply of crude oil in the market was finally forming, such as the continuous expansion of offshore crude oil inventories, prompting hedge funds to take an extremely bearish stance. However, the U.S. government listing two major Russian oil giants, Rosneft PJSC and Lukoil PJSC, on the sanction blacklist to address the situation in Ukraine completely overturned market expectations. This unexpected move by the government, as investors had previously believed that the U.S. government would avoid measures that would increase crude oil futures prices. The decrease in Russian crude oil exports to major buyers such as India and China may alleviate the impact of oversupply and provide support for oil prices. According to estimates by Rystad Energy AS, these sanctions may lead to a reduction of up to 600,000 barrels per day in Russia's daily crude oil production. With the U.S. government shutdown leading to the temporary halt in the publication of the U.S. crude oil holdings weekly report, the trading data released by ICE on Friday is particularly important for traders trying to assess market sentiment. As of September, fund managers' bullish positions in U.S. crude oil had dropped to historic lows, meaning that many investors are currently facing losses on their positions.