On the eve of this week's "epic turbulence" in oil prices, hedge funds' bullish bets on crude oil hit the highest level since 2020.

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Before the most turbulent week in crude oil market history began, hedge funds had already pushed bullish bets to the highest level in six years.

According to Bloomberg on Saturday, citing weekly futures and options data published by ICE Futures Europe, for the week ending March 10, asset management institutions increased net long positions in Brent crude oil by 65,438 contracts to 351,032 contracts, the highest since February 2020. Meanwhile, according to US Commodity Futures Trading Commission (CFTC) data, bullish bets on US crude oil also rose to an eight-month high.

Nearly two weeks of near-paralysis in the Strait of Hormuz—through which about one-fifth of the world’s oil supply passes under normal circumstances—has caught many market participants off guard. Many had expected the US-Israel joint action to be a precise, surgical strike.

The shock to the energy market has already forced several major oil-producing countries in the region to cut production, while some refiners have begun to default on contracts.

Bullish Bets Soar to Six-Year High

The near-standstill in the Strait of Hormuz caused by the Iran war has completely disrupted market participants' expectations and sparked the biggest commodity market volatility since the Russia-Ukraine conflict.

Hedge funds have entered the market en masse during this cycle. Net long positions in Brent crude oil increased by more than 65,000 contracts in a single week, reaching 351,032 contracts—the highest since February 2020. Bullish bets on US crude oil also simultaneously climbed to an eight-month high, showing that bullish sentiment has spread across both major global benchmarks.

The outbreak of the Iran war is the core driving force behind this round of bets. The Strait of Hormuz, a key global energy chokepoint, usually sees about one-fifth of the world's oil supply transit daily. The near paralysis over the past two weeks has turned market concerns over supply disruptions from perceived risk into a real shock.

Pressure on Supply Side—Oil Producers and Refiners Both Hit

Pressures on the supply side have spread from paper trading to the physical market. As storage capacity nears saturation, several major oil producers in the region have been forced to cut output; meanwhile, some refiners have begun to default on contracts, further intensifying supply chain stress.

This situation is significantly different from previous market expectations. Most participants initially thought the US-Israel joint military action would be brief and precise, and did not fully price in the risk of a sustained supply interruption. The reality has forced the market to re-evaluate the geopolitical premium.

Volatility Soars, Algorithmic Traders and Options Market Under Pressure

In the derivatives market, multiple volatility indicators have reached their highest levels since the outbreak of the Russia-Ukraine war. Algorithmic traders have increased long positions to the limit, and as market makers reduce risk exposure, option trading activity has been clearly suppressed.

Both ends of the market are acting in sync: oil producers are rushing to the market to lock in future revenues, while on the consumer side there is panic-driven hedging, with many scrambling to purchase protective positions to guard against a further spike in oil prices. This two-sided buying pressure has further amplified the market’s directional momentum and volatility.

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