Hedge funds have cut their investments in crude oil to the lowest level in almost 17 years. With less risk of new sanctions on Russian oil, the focus has turned to worries about too much supply. Recent CFTC data from Bloomberg shows that money managers reduced their net-long position in West Texas Intermediate (WTI) futures by 19,578 lots, bringing the total down to 29,686 in the week that ended on Tuesday. This is the lowest level since October 2008.

Geopolitical Tensions Ease

Geopolitical tensions have calmed down, and several agencies expect that oil supply will surpass demand later this year. The U.S. is pushing for talks to resolve the conflict in Ukraine, making new sanctions on Russian oil less likely, even though peace efforts have not made much headway. Money managers now hold the smallest net-long position in WTI crude since the 2008 financial crisis. This indicates a strong belief that oil prices will drop in the near future. The focus has shifted away from geopolitical risks to worries about a global surplus of oil. Recent reports from the International Energy Agency (IEA) indicate that global oil production is set to exceed demand by almost 1.5 million barrels per day by the fourth quarter of 2025. Russian oil exports by sea have also remained surprisingly strong, averaging over 3.3 million barrels per day through mid-2025. This steady supply takes away a key factor that had kept prices high. On the demand side, weakening economic indicators—especially China’s manufacturing PMI dropping below 50—point to a decrease in consumption ahead. This is a stark contrast to the positive demand forecasts we saw earlier this year. Traders are now worried about significant demand destruction if the global economy continues to slow down.

Market Positioning Strategy

Given the current situation, traders might want to prepare for further declines or stagnant prices. Buying put options on WTI or Brent provides direct exposure to falling prices. Selling call credit spreads can generate income if prices stay below a certain level. We have noticed a significant rise in the put-to-call ratio for October and November 2025 contracts, reflecting this bearish outlook. The last time hedge funds were this negative was in October 2008, just before a major price crash during the global financial crisis. While the overall picture seems weak, such extreme positioning can also lead to a sharp price rebound if an unexpected event occurs. Therefore, managing risk in bearish trades is crucial, as crowded trades can unwind quickly. Create your live VT Markets account and start trading now.

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