Escalating Red Sea Tensions Drive Oil Prices Up, Hedge Funds Increase Bullish Bets


Amid ongoing tensions in the Middle East, oil prices maintain substantial gains for over a week, with a recent attack in the Red Sea impacting ships' avoidance of the main maritime route. Brent, the global benchmark, traded near $81 per barrel after rising by 2.5% yesterday, while West Texas Intermediate (WTI) crude traded above $75. The ship "MSC United" was attacked during its journey from Saudi Arabia to Pakistan, even as the United States and other nations deploy naval forces to deter such assaults.


The recent attack, attributed to Houthi rebels in Yemen, alongside U.S. strikes in Iraq, signals ongoing tensions that could lead to a broader conflict in the region.

Oil Market Records First Yearly Decline

In another context, the oil market is heading towards its first yearly decline since 2020, despite price improvement from earlier lows this month, as concerns persist about a supply surplus next year. Nevertheless, price differentials for oil futures increased in recent sessions, with the gap between the nearest two Brent contracts widening. The upcoming sessions are expected to see lower trading volumes due to the absence of many traders during the holiday season.

Meanwhile, Brent crude shows signs of a "death cross," preparing to close its 50-day moving average below its 200-day counterpart, raising concerns among some traders about further declines.


Positive Shift in Hedge Funds Amid Geopolitical Tensions

Hedge funds witnessed a positive shift for the first time in nearly three months as expectations of rising oil prices increased, driven by escalating geopolitical risks threatening global energy shipments, contributing to price recovery. Fund managers boosted net buying positions on West Texas Intermediate to 109,723 contracts after adopting a significantly bearish stance in the previous week, according to data from the Intercontinental Exchange and the Commodity Futures Trading Commission. The net increase in buying positions, the first since late September, was primarily a result of a substantial drop of 32,678 contracts in bearish positions.

This positive movement comes as oil reaches its highest weekly level in months, a consequence of continuous Houthi attacks in the Red Sea, posing the potential for prolonged disruptions. Despite this, long-term oil expectations face challenges, as the United States prepares for record production next year, while growth rates in demand are expected to slow.


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