"Smart money" sensed a rebound in oil prices? After the US escalated sanctions on Russian oil, hedge funds set a record by reducing their bearish oil positions.

After the U.S. government imposed sanctions on the largest oil giants in Russia, global hedge funds reduced their bearish short positions on Brent crude futures contracts by a record amount, marking the largest reduction in positions ever recorded. This occurred at a time when the oil trading market was just adapting to the pessimistic expectation of "oversupply". For these hedge funds obsessed with high leverage strategies, the latest sanctions are considered a comprehensive threat to the oil exports of this "OPEC+" alliance, which is second in size only to Saudi Arabia. Therefore, their expectation of "oversupply" has been significantly reduced, leading to a widespread exodus from bearish bets in the oil market. According to statistics from ICE Futures Europe, as of the week ending October 28, global hedge funds, known as the "smart money", reduced their pure bearish bets on Brent crude futures by 62,078 contracts, hitting a record low of 135,790 contracts. This extremely large reduction in bearish positions set a record for ICE Futures Europe. This rapid change in market sentiment occurred after the U.S. government blacklisted Russian oil giants Rosneft Oil Co. PJSC and Lukoil PJSC, aiming to curb Russia's almost endless oil export revenue, much of which is invested in the Russia-Ukraine conflict. In addition to the significant reduction in supply resulting from the sanctions on Russian oil giants, commodity traders are also focusing on the next moves of major buyers of Moscow oil supply, India and China, to find clues on the impact of the latest U.S. government sanctions on the global oil supply-demand balance. Bearish oil bets hit record lows - US sanctions on Russian oil exports add to strong bullish sentiment on Brent crude As these escalated sanctions on Russian oil exports were announced, the global oil supply seemed abundantly abundant, fueling extreme bearish sentiment. Despite signs of cooling demand growth, OPEC+ member countries have been significantly increasing their oil production, leading Wall Street giants like Goldman Sachs, Citigroup, and JPMorgan to continue to bearish on Brent crude prices. These banks have been predicting an oversupply will persist until 2026. As OPEC and its allies continue to increase oil supply, the international oil benchmark Brent crude prices are heading for their biggest annual decline in five years (Brent crude prices have fallen over 15% this year), weakening the robust profits that Exxon Mobil and Chevron have been enjoying in the oil industry after the COVID-19 pandemic, and the aura of the pro-traditional energy industry regulatory framework of US President Donald Trump. However, based on the latest hedge fund bets, the downtrend in Brent crude prices may sharply turn into a strong rebound. It is reported that the ongoing U.S. government shutdown has suspended the weekly reports of U.S. hedge funds' crude oil futures positions by the Commodity Futures Trading Commission (CFTC), making data from ICE Futures Europe vital for commodity traders. For energy export revenue, which Russia heavily relies on, this is one of the harshest and most direct sanction upgrades by the U.S. government to date: marking the "harshest U.S. sanctions measures against Russian companies during the Russia-Ukraine war". The two above-mentioned Russian oil supergiants subject to sanctions account for nearly half of Russia's oil production, making a significant impact on the global oil market landscape. In addition to the two parent companies, several subsidiary companies have been concurrently designated; triggering the extension of the shareholding chain blockade under the 50% rule. Furthermore, the U.S. government can sanction any foreign financial institution (FFIs) conducting "significant transactions" with the blocked individuals; meaning that non-U.S. banks/companies, especially European financial giants, may face penalties such as restrictions from accessing the U.S. dollar/U.S. financial system if they continue to have significant business dealings with Rosneft and Lukoil.