The U.S. sanctions on Russian oil companies disrupt market expectations, and hedge funds miss out on the rising market due to massive short positions

According to the Zhitong Finance APP, hedge funds holding record short positions in Brent crude oil failed to capitalize on this week's rise in oil prices. Data from ICE Futures Europe shows that in the week ending October 21, fund managers increased their short positions in Brent crude oil, the global benchmark price, by 40,233 contracts to 197,868 contracts, setting a new historical high.

Previously, increasing evidence indicated that the long-awaited oversupply of crude oil was finally taking shape, such as the continuous expansion of offshore crude oil inventories, which also prompted hedge funds to adopt an extremely bearish stance.

However, the U.S. government's decision to sanction two major Russian oil giants—Rosneft PJSC and Lukoil PJSC—in response to the situation in Ukraine completely overturned market expectations. This decree surprised investors, who generally believed that the U.S. government would avoid taking measures that would drive up crude oil futures prices.

Russia's crude oil exports to major buyers like India and China have declined, which may alleviate the impact of the oversupply and provide support for oil prices. According to Rystad Energy AS, these sanctions could lead to a reduction of up to 600,000 barrels per day in Russian crude oil production.

Currently, the U.S. government shutdown has led to a suspension of the weekly U.S. crude oil inventory report. In this context, the trading data released by the Intercontinental Exchange on Friday is particularly important for traders trying to gauge market sentiment. As of September, the bullish positions held by fund managers in U.S. crude oil have fallen to historical lows, indicating that many investors are currently facing losses in their positions