Hedge funds have significantly increased bearish bets on crude oil, positioning for a potential downside as OPEC+ mulls a fresh wave of supply increases and geopolitical developments weigh on sentiment, according to a report by Bloomberg citing data from ICE Futures Europe.
In the week to 27 May, short-only positions in Brent crude futures surged by 16,922 contracts to 130,019 – the highest level since October. WTI short exposure meanwhile, also climbed to a three-week high, according to Commodity Futures Trading Commission figures, highlighting a growing consensus among macro and commodity-focused managers that the near-term outlook for crude is deteriorating.
Oil prices came under pressure last week as traders priced in the risk of a third consecutive output increase, with an OPEC+ sub-group led by Saudi Arabia scheduled to meet Saturday to determine July production targets. The move follows preliminary talks pointing to more aggressive supply management—raising fears of a potential oversupply scenario just as demand projections remain tepid.
Adding further weight to bearish positioning, investor optimism around a possible US-Iran nuclear deal has resurfaced, which could result in relaxed sanctions on Iranian oil exports—potentially flooding the market with additional barrels from the OPEC member.
The combination of rising supply risks and softening macro demand expectations is prompting commodity traders and systematic macro funds to scale up short exposure across the energy complex. Gasoline short-only bets also reached a four-week high, despite the onset of the US summer driving season, traditionally a period of elevated demand.
While long-term fundamentals remain constructive for some investors—particularly in the context of underinvestment in upstream capacity—short-term macro catalysts appear to be dictating a more defensive hedge fund stance.
