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Hedge Funds Turn Increasingly Bullish On Crude

Over the past week, money managers have turned even more bullish on oil prices, betting that Brent Crude prices will further rise amid expectations that OPEC and friends can’t or won’t fully offset the supply gap in Brent-linked oil cargoes with the U.S. sanctions on Iran.

According to data from exchanges compiled by Reuters market analyst John Kemp, hedge funds and other money managers boosted again their combined net long position in the six major petroleum contracts in the week to September 25. Most of the bets on rising prices are overwhelmingly concentrated on Brent Crude, rather than on WTI or gasoline or other oil products. Money managers are positioning for a shortage of Brent and Brent-linked oil grades, as the U.S. sanctions on Iran are expected to remove more than 1 million bpd—some say even more than 1.5 million bpd or as much as 2 million bpd—of Iranian oil from the market.

Over the past month, hedge funds have returned to bet on rising oil prices, first with various tanker tracking data suggesting that Iranian oil exports are already noticeably dropping, then with the inaction from an OPEC and allies panel, which met in September, and patted each other on the back for a job well done—and stopping short of announcing any immediate production boost to offset the Iranian barrel loss or plunging Venezuelan production.

Related: Fuel Oil Isn’t Going Anywhere

The net long position—that is the difference between bullish and bearish bets—in Brent Crude jumped by 6.1 percent for the week to September 25, according to exchange data compiled by Bloomberg. The net long position jumped to the highest since the end of May this year. Hedge funds’ longs in Brent Crude increased for a fifth week running, while the number of shorts slumped to their lowest since May of 2016.

Early survey data by Reuters shows that although OPEC was pumping in September at its highest level so far this year, a 100,000-bpd plunge in Iran’s production curtailed the supply boost from the cartel last month.

The high number of longs in Brent may leave the contract exposed to a slump when or if fund managers decide to take profits, but for more than a month now, the market has been expecting higher oil prices as the kick-off date of the Iran sanctions nears.

By Tsvetana Paraskova for Oilprice.com

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