Hedge Funds Shift to Energy as Middle East Conflict Lifts Oil

Brent crude traded around $85 a barrel and West Texas Intermediate neared $80 on Friday, marking about a 12% weekly rise, the biggest weekly gain since April. Prices increased after a new round of U.S. strikes on targets in Iran and reports that Iran could encourage Yemen’s Houthi forces to target commercial shipping in the Red Sea.

Traders focused on the Strait of Hormuz, through which about one-fifth of global oil passes, and the Bab el-Mandeb, which controls access to the Suez Canal. Tanker traffic at those chokepoints has slowed, while many shipments continue on longer routes or through ship-to-ship transfers.

Discretionary macro funds and commodity trading advisers increased energy trading and volatility strategies after the recent price moves. Diesel and gasoline margins tightened more sharply than crude as inventories remained low and refinery output weakened following attacks on refinery infrastructure, including disruptions that reduced Russian refined-product exports.

Analysts note limited spare capacity for fuels and fewer options to change refinery output, which increases market sensitivity to supply disruptions. Lower global inventories and reduced refined-product flows have added pressure on diesel and gasoline markets.

Higher naval patrols and stricter enforcement measures have raised insurance costs and can slow transit times, adding operational uncertainty for shipping companies and commodity traders. Market participants are tracking vessel movements, daily shipping reports and insurance premiums to assess delivery risks.

Investor focus shifted from expectations of a quick diplomatic outcome to evaluating how long and how severely regional tensions might affect oil flows. Traders and fund managers are monitoring regional naval activity, government statements and commercial shipping behavior to adjust positions.