Hedge funds have sharply reduced bearish positions on European diesel, signalling growing expectations that a severe fuel supply squeeze will persist as disruptions to crude and refined-product flows continue, according to a report by Bloomberg.
The report cites data from ICE Futures Europe as showing that short-only positions in European gasoil fell to their lowest level in more than two years last week, while funds increased bullish bets to their highest level since shortly before the US-Iran conflict began.
Funds cut 309 short-only contracts, taking the position count to its lowest level since July 2024. At the same time, they added 1,498 long-only positions, pushing gross longs to their highest level since the week before the outbreak of the US-Iran war.
On a net basis, hedge funds were more bullish on European diesel than at any point in roughly six months.
The shift comes as diesel refining margins have climbed towards record levels, reflecting increasingly tight supplies. Middle Eastern crude exports have been disrupted, while restrictions on Russian diesel exports and a fresh wave of Ukrainian attacks on Russian refineries have further reduced the availability of refined products.
The market is showing little sign of a rapid return to normal conditions, encouraging speculative investors to position for continued strength in diesel prices.
Hedge funds have also adopted a more bullish stance towards US diesel. Weekly data from the Commodity Futures Trading Commission showed gross long positions in US-traded diesel contracts rising to their highest level since the opening week of the US-Iran conflict.
Gasoline positioning has moved in the same direction. Hedge funds increased net-long bets on US gasoline to their most bullish level since 17 March, shortly before average US pump prices moved above $4 a gallon for the first time during the conflict.
Although gasoline markets are less constrained than diesel, supplies remain unusually tight. Seasonal US gasoline prices are at record levels, while refiners seeking to maximise distillate output can reduce the amount of gasoline produced at the margin, potentially adding further pressure to the petrol market.
Hedge funds are also becoming more constructive on crude itself. Net-long positions in both Brent and West Texas Intermediate have increased, with Brent positioning reaching its strongest level since early June.
That positioning shift came before an earlier US-Iran agreement aimed at halting the conflict, which was subsequently abandoned.
