Brent crude nears $80 as hedge funds reverse bets

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Oil prices rose above last week’s highs on Monday amid growing fears of an escalation in the Middle East conflict.

Brent crude, the global oil benchmark, rose as much as 2.4 percent to $79.94 a barrel as Hamas fired missiles into Israel, which launched strikes against targets in Gaza and Lebanon.

The price, which has fallen sharply since early April, gained more than 8 percent last week, its biggest weekly gain since January 2023, driven by Iran’s missile attack on Israel.

Traders are concerned about a potential strike against energy infrastructure in the region that could disrupt oil supplies or disrupt the Strait of Hormuz.

There are signs that hedge funds, many of which have bet on oil extending this year’s declines, are starting to adjust their positioning. Funds trimmed their large short bets against Brent and increased their long positions in the week to October 1 in the early stages of last week’s rally, according to ICE data.

However, computer-based funds that tried to cling to market trends were likely to have still bet against oil on Thursday, according to a model portfolio run by Société Générale.

Israel marked the first anniversary of the deadly October 7 Hamas attack on Monday. Ceremonies in southern Israel were disrupted by the group firing rockets into Gaza. The rockets also set off sirens in Tel Aviv.

The events come amid a new offensive by Israeli forces in northern Gaza and follow a ground troop incursion into Lebanon, where Israel is exchanging fire with Iran’s proxy Hezbollah.

US President Joe Biden said on Thursday that Israel had discussed striking Iran’s oil facilities in retaliation for an Iranian missile barrage fired on Israel last week. He later suggested that Israel should consider other options.

“If I were them, I would think about alternatives other than hitting the oil fields,” Biden said Friday.

The Islamic Republic exports 1.7 million barrels of oil a day, mainly from a terminal on Kharg Island, about 25 km off the country’s southern coast.

Daan Struyven, an analyst at Goldman Sachs, told clients that a six-month outage of about 1 million bpd would push Brent to $85 by the middle of next year if OPEC makes up the shortfall. Prices could climb to the mid-$90s without an offset, he estimated.

“Investors are focused on the risk of Israel and Iran entering a cycle of retaliatory attacks that could escalate into a wider conflict,” Struyven said.

Additional reporting by Laurence Fletcher