Hedge funds raise crude longs despite sharp oil drop

Hedge funds sharply increased long positions in crude oil at the fastest rate since March, even as Brent crude plunged more than 7% on Monday. The rise in bullish bets came before and during a rapid price pullback linked to diplomatic developments between the United States and Iran.

US President Donald Trump announced the suspension of planned military action against Iran and called for fresh negotiations aimed at reopening the Strait of Hormuz. Market participants reduced the geopolitical risk premium built into oil prices, prompting some funds to unwind positions that had been added when tensions were higher.

Macro and commodity-focused funds had added significant long exposure in recent weeks in anticipation that escalating tensions could disrupt shipments through the Strait of Hormuz. The sudden drop in prices showed how quickly speculative positions were adjusted after the change in the diplomatic outlook.

The oil decline affected other markets. US Treasury prices rose and the benchmark 10-year yield fell as lower near-term energy costs eased immediate inflation concerns. Equity index futures in the United States and Europe moved higher.

Asian markets experienced volatility, led by semiconductor shares. South Korea’s Kospi Index lost more than 5% as chipmakers retraced part of last week’s gains. Chinese technology stocks outperformed after several leading developers released new artificial intelligence models.

Currency markets were also active. The Japanese yen strengthened amid expectations of possible coordinated intervention by Japan and the United States to limit exchange-rate swings. The US dollar weakened against several major currencies.

Market participants expect volatility to remain elevated while talks continue and shipping through the Strait of Hormuz remains uncertain. Months of conflict had pushed oil higher on fears of disrupted shipments from the Middle East, encouraging funds that trade geopolitical and commodity risks to build positions ahead of potential supply shocks.