Oil Bull Crowd Grows to Start 2025 on Trump Trade, Technicals

(Bloomberg) -- Money managers are turning increasingly bullish on oil to start 2025 as technical signals prompt algorithmic traders to dump short positions and hedge funds position for sanctions and inflation in a second Trump term.

Funds’ long-only contracts on West Texas Intermediate swelled to 247,113 lots last week, a 41% gain in the past three weeks, according to data from the Commodity Futures Trading Commission. Short bets are down 33% in the same period, pushing the net-long position to the most bullish since August.

Algorithmic traders are among the main drivers of the trend after crude broke through its 100-day moving average last week, prompting the funds to switch to bullish positions. For more fundamental traders, Trump’s hawkish stance toward Iran has spurred reluctance to be short, and the potential for his tariffs to spike inflation is boosting the use of long bets as a hedge.

“The fundamentals do support a tighter market,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities, citing near-peak Permian production, Chinese demand that’s unlikely to further deteriorate, seasonally low inventories in the Cushing, Oklahoma, storage hub, and positioning ahead of Trump’s expected policy changes.

Physical oil markets remain strong, with both WTI and Brent futures trading in bullish backwardation structures that indicate near-term supply tightness and offer investors the ability to make money when rolling contracts from one month to the next.

“Prices are roughly in line with where we expect them to be, but the fact that it has positive carry makes it a much easier hedge to own for all the various risks that one would see on the horizon, whether it be geopolitical, whether it be inflation,” said Greg Sharenow, who helps manage nearly $20 billion as head of Pimco Commodity’s portfolio management team.

The bullish tilt is taking shape after a year that saw extremes in bearish positioning. In September, money managers went net short on Brent for the first time in data stretching back more than a decade amid signs of faltering demand in the US and China and increasing expectations for an oversupply in 2025. Investors remained net bullish on WTI, but drove that bullish position to the smallest since February.

While money managers grew steadily more bullish on Brent from there, positioning on WTI failed to sustainably recover until the rebound that started last month. WTI futures have now rebounded more than 10% from their September lows, with most of that gain coming in the past month, despite the continued expectations of an oversupply this year and mixed signals on consumption in China.