The flames of war between the US and Iran reignite, hedge funds aggressively increase their positions in crude oil, setting the fastest pace in ten years.

The escalation of the US-Iran conflict is deeply reshaping the global oil market landscape. Hedge funds are rapidly betting on Brent crude oil to rise at the fastest pace in nearly a decade, as the blockade in the Strait of Hormuz and tightening fuel supplies are driving both oil prices and refinery profits to soar. According to media reports, as of the week ending July 14, asset management institutions increased their net long positions in Brent crude oil by 75,996 contracts to 357,154, marking the largest single-week increase since December 2016. Overall open interest rebounded significantly from a seven-month low touched the previous week. At the same time, crude oil prices have surged to about a one-month high in the past 10 days, following a cumulative drop of about 30% in the second quarter. The immediate trigger for this round of positions increase was the US resuming military strikes against Iran. Iran subsequently launched retaliatory attacks against Gulf neighbors and conducted naval attacks on ships passing through the Strait of Hormuz, severely restricting traffic in this crucial chokepoint. Investor sentiment has sharply reversed in just one weekfrom previous concerns about oversupply to a rush to close out short positions. Positions quickly reverse, longs re-enter the market The intensity of this round of hedge fund positions increase is extremely rare in history. According to ICE European Futures and Options data cited by the media, the increase in long positions in Brent crude oil set a record high since December 2016, pulling overall open interest back from a seven-month low. This shift reflects the drastic fluctuations in market sentiment. Just a week ago, investors were worried about potential oversupply; but as the US resumed strikes against Iran, the market quickly shifted, with short covering becoming the dominant force, driving a rapid accumulation of long positions. Hormuz blockade, record fuel profits The conflict's impact on the global fuel market is also significant. Iran's attacks on ships passing through the Strait of Hormuz have significantly reduced traffic in the channel over the past 10 days, tightening global supplies of diesel, gasoline, and other refined products, pushing global refinery margins to historic highs. According to data, funds also increased their net long positions in New York Mercantile Exchange heating oil by 1,868 contracts, with total open interest rising to 36,451 contracts, the highest level since the outbreak of the Iran war in March. The single-week increase in Nymex diesel net long positions also saw the largest rise since before the outbreak of the war in February. Russian exports plummet, adding to supply pressure The supply tightness in the fuel market is not solely due to the situation in the Middle East. According to media reports, Ukraine's continued attacks on Russian refineries for several months have led to a sharp decline in Russian refined oil exports. Moscow subsequently announced a ban on diesel exports, further exacerbating the tight global fuel supply situation. With the dual impact of these two major supply shocks, the pressure on the global diesel market is particularly evident, and to some extent explains why refinery profits have quickly risen to historic highs in the short term, attracting continuous inflows of funds into related long positions. This article is reprinted from "Wall Street See News", GMTEight editor: Zhang Jinliang.