Geopolitical tensions in the Middle East are escalating, driving up the risk premium. Hedge funds' bullish bets on oil have risen to their highest level in 22 months.

Due to increasing concerns among investors that the United States may soon take military action in the Middle East and disrupt oil supplies in the region, hedge funds have reached their highest bullish sentiment on Brent crude oil since April 2024. Data from the Intercontinental Exchange's European futures market shows that, as of the week ending February 24, fund managers increased their net long positions on Brent crude oil by 57,766 contracts to 320,952 contracts, the highest level in nearly two years. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that bullish bets on U.S. WTI crude oil have also risen to a seven-month high. After optimism in the market that negotiations between the U.S. and Iran may make progress and resolve issues through diplomatic means quickly faded, investors have once again turned to a bullish stance on oil, causing benchmark futures prices to regain a risk premium. Traders are digesting signs that any U.S. military action is likely to be a prolonged operation, rather than a night-time strike similar to the one targeting Iranian nuclear facilities last June. On Friday, WTI crude oil futures for April closed up 2.78% at $67.02 per barrel, rising 3.52% in February; Brent crude oil futures for April closed up 2.45% at $72.48 per barrel, up 5.64% in February. The U.S. has recently continued to exert military pressure on Iran, increasing troops in the Middle East. The U.S. aircraft carrier "Ford" arrived in Israel on February 27, which means that the U.S. military has deployed both the "Ford" and "Lincoln" aircraft carriers in the Middle East at the same time. The current scale of U.S. military buildup in the Middle East is the largest deployment in the region since the invasion of Iraq in 2003. Reports indicate that although the U.S. and Iran have agreed to continue talks next week, with the U.S. amassing a large number of warplanes and warships in the Middle East, the risk of war between the two countries is looming. On February 27, the Iranian military stated that they would respond with "destructive" force to any aggression by the U.S. Iranian media quoted a spokesperson for the Iranian armed forces general staff, who said that any provocative actions by the U.S. would be met with a "decisive and destructive" response from the Iranian armed forces. President Trump stated on February 27 that he is "not satisfied" with the current progress of the Iranian nuclear negotiations, but has not yet made a final decision on whether to launch a military strike against Iran. He told reporters as he left the White House that in the negotiations, Iran is unwilling to give the U.S. what they "deserve," and he is "not happy." Trump stated that the U.S. has not made a final decision on whether to launch a military strike against Iran, and will see what happens after "further negotiations." Trump also stated that he does not want to use force, "but sometimes you have to." He reiterated that he will not allow Iran to possess nuclear weapons. Additionally, as tensions continue to escalate, many countries are issuing safety advisories advising their citizens to evacuate or avoid traveling to Iran and other Middle Eastern countries. Some analysts point out that if future negotiations between the U.S. and Iran fail and Iran cuts off the Strait of Hormuz, there could be a major impact on oil supply in the Middle East, causing oil prices to surge, potentially even surpassing the $100 per barrel mark in extreme circumstances.