Growing investor concerns over potential US military action in the Middle East, which could disrupt regional oil supplies, have pushed hedge fund bullish sentiment on Brent crude to its highest level since April 2024. Data from ICE Futures Europe shows that in the week ending February 24, fund managers increased their net long positions in Brent crude by 57,766 contracts to 320,952 contracts, marking the highest level in nearly two years. According to data from the US Commodity Futures Trading Commission (CFTC), bullish bets on US WTI crude also rose to a seven-month high.
Following a rapid dissipation of earlier market optimism that US-Iran negotiations might yield progress and resolve issues diplomatically, investors have shifted back to a bullish stance on crude oil. This has restored a risk premium to benchmark futures prices. Traders are also assessing indications that any US military action would likely be a prolonged operation, rather than a brief nighttime strike similar to the one targeting Iranian nuclear facilities in June of last year.
On Friday, the WTI April crude futures contract settled up 2.78% at $67.02 per barrel, accumulating a 3.52% gain for February. The Brent April crude futures contract settled up 2.45% at $72.48 per barrel, posting a 5.64% monthly increase.
The US has recently maintained military pressure on Iran, deploying additional troops to the Middle East. The arrival of the USS Gerald R. Ford aircraft carrier in Israel on February 27 means the US now has two carriers, the Ford and the Lincoln, simultaneously deployed in the region. The current scale of the US military buildup in the Middle East represents the largest deployment there since the 2003 invasion of Iraq.
Reports indicate that although the US and Iran have agreed to continue talks next week, the risk of war between the two countries is "approaching" as the US assembles a significant force of aircraft and warships in the region. On February 27, the Iranian military stated it would deliver a "crushing" response to any US act of aggression. Iranian media quoted Iranian Armed Forces General Staff spokesman General Abolfazl Shekarchi, reporting that any US provocation would be met with a "decisive and destructive" response from Iran's armed forces.
On February 27, the US President expressed dissatisfaction with the current progress of nuclear negotiations with Iran but stated that a final decision on whether to launch a military strike had not been made. Speaking to reporters as he left the White House, he said that Iran was unwilling to provide the US with what it "deserved" in the negotiations, leaving him "very dissatisfied." He noted that the US had not yet made a final decision regarding military action against Iran and would wait to see "what happens after further talks." The President also stated that he did not want to use military force, "but sometimes you have to." He reiterated that Iran would not be allowed to possess nuclear weapons.
Furthermore, as tensions persist, multiple countries have issued security advisories, recommending their citizens evacuate or avoid travel to Iran and other parts of the Middle East. Some analysts point out that if US-Iran negotiations ultimately fail and Iran moves to block the Strait of Hormuz, crude supplies from the Middle East could be severely impacted. This could lead to a significant surge in oil prices, potentially even breaching the $100 per barrel threshold under extreme scenarios.