Smart money collectively shifts towards traditional energy longs! Hedge funds are buying from European diesel all the way to American gasoline, Brent crude, and WTI.

Global hedge funds, known for their smart money in financial markets, have significantly reduced their pure short positions in European diesel, unexpectedly lowering them to the lowest level in over two years while also establishing new bullish bets. This indicates that traders expect this historic fuel supply crisis to continue. In the U.S. oil commodity futures market, hedge funds have notably increased their bullish positions on U.S. gasoline, Brent crude oil, and West Texas Intermediate (WTI) crude oil, particularly with net long positions in U.S. gasoline rising to the highest level since March 17. These latest trades by hedge funds in energy markets highlight a growing cross-market bullish resonance. As of August 18, funds reduced their pure short positions in European diesel futures by 309 contracts to the lowest level since July 2024, while adding 1,498 contracts in pure long positions, bringing the net long to about its highest in six months. The total long positions in U.S. diesel have reached the highest since the early days of the war, net long positions for U.S. gasoline are at their highest since March 17, and long positions in Brent and WTI have also increased in tandem. As these changes in positions include both "active additions" and "reducing shorts," their signal strength is significantly higher than a simple short covering, indicating that hedge fund institutions are betting on the persistence of the fuel crisis. The profit margins for refining diesel and light diesel from crude oil have surged to near historic highs. Due to a decrease in barrels supplied from the Middle East, coupled with intensified attacks on Russian refineries by Ukraine, and Russias ban on most diesel exports, global refined oil supplies have sharply tightened. In the United States, the profit from refining crude oil into diesel has skyrocketed to over $100 per barrel, reaching a historic high, while the ongoing global refined oil supply crisis continues to escalate price pressures on core fuels. The U.S. diesel crack spread closed above $100 per barrel for the first time on Monday, even breaking a record above $102 during trading, far exceeding the previous high of $89 set during the first winter of the Russia-Ukraine conflict in 2022; this week it continues to hover near this historical peak. For overall refining profit indicators, the WTI 3-2-1 crack spread has also reached a historic high, around $69.18 per barrel on August 18, surpassing the previous historic record of about $60 in 2022. The EIA (U.S. Energy Information Administration) defines the crack spread itself as the difference between the wholesale price of refined oil products and the cost of crude oil, making it a closer measure of refinery marginal profitability than absolute oil prices. However, it is a composite refining profit indicator of two barrels of gasoline + one barrel of diesel and should not be confused with the diesel crack spread, which has broken the $100 per barrel mark. The geopolitical situation in the Middle East appears to be spiraling out of control. Following the breakdown of previous temporary ceasefire negotiations between the U.S. and Iran, diplomatic windows for talks have sharply narrowed, and the U.S. is clearly shifting towards extreme economic pressure. Trump has announced an "unprecedented economic war and isolation" against Iran, with Treasury Secretary Mnuchin previewing the launch of the "most severe" financial sanctions in history, threatening to punish third countries that provide economic lifelines to Iran; Iran has characterized this as economic and psychological warfare, warning of potential strong responses. Meanwhile, only seven commodity ships passed through the Strait of Hormuz on the latest day, with no VLCC or LNG carriers; the traffic in the Strait of Mandeb has also decreased from 34 ships in the previous two days to 23. Thus, while these two channels are not legally fully blocked, the volume of energy transport has significantly shrunk, leading to ongoing rises in war insurance, detours, and supply interruption premiums. The U.S.-Iran conflict has led to crude oil and refined oil being trapped within the Strait of Hormuz. Ukraine has attacked Russian refineries and triggered temporary export bans, while Libyan refineries have been attacked, and Houthi rebels have targeted Saudi facilities, further constricting effective supply. Although U.S. diesel exports have reached record highs, domestic inventories have fallen to their lowest level for this time of year since 1996; high profits have also led refineries to delay maintenance, accumulating risks of unplanned shutdowns under high operating loads. This means that the current global refined oil supply crisis is essentially a structural bottleneck formed by global middle distillate oil capacity, inventories, and shipping safety. The geopolitical situation is sliding from a fragile ceasefire back towards full military escalation. The 60-day temporary arrangement signed between the U.S. and Iran on June 17 expired on August 17, and Trump has clearly stated he will not extend it, with no upcoming negotiations scheduled with Iran, shifting his stance from seeking a ceasefire to demanding substantial "capitulation" from Iran, while opposing a joint Oman-Iran management plan for the Strait of Hormuz. Both the U.S. and Iran are currently emphasizing their camps' ability to control the Strait of Hormuz, escalating fierce verbal exchanges and geopolitical maneuvering. The energy transport risks in the "dual straits" have transformed from potential threats into strong logistical constraints in reality, meaning that premiums on war insurance, detours, freight rates, and delivery cycles will be long embedded in energy prices. From European diesel to U.S. gasoline and dual oil, the historic fuel shortage has triggered a total mobilization of energy bullish sentiment. Given that this crisis shows almost no signs of easing, according to the latest position statistics from ICE Futures Europe in the European futures market, hedge funds have reduced their pure short bets in light diesel by 309 contracts to the lowest level since July 2024. Hedge funds have also added 1,498 contracts in pure long positions, raising the total longs to the highest level since the week preceding the U.S.-Iran war. In terms of net positions, traders' bullish sentiment has reached its highest in about six months. Diesel futures contracts traded in the U.S. energy market are also showing bullish trends. The latest weekly data from the CFTC (U.S. Commodity Futures Trading Commission) indicates that total long positions in diesel futures in the U.S. futures market have swollen to their highest level since the first week of the U.S.-Iran war broke out. Hedge funds' net long positions in U.S. gasoline futures have surged to their most bullish level since March 17; shortly thereafter, average gasoline prices at U.S. gas stations surpassed $4 per gallon for the first time during the war. While the tightness of gasoline supply is relatively lower than that of diesel, it is also in an unusually sparse state. Average retail prices at gas stations are at record-high levels for the same period, while efforts to increase yields of refined fuels like diesel often come at the significant cost of sacrificing marginal gasoline production. As shown in the above figure, hedge funds bullish sentiment toward light diesel has reached its highest since Februarythe net long diesel bets have risen to the highest level since the week before the outbreak of the U.S.-Iran war. Although crude oil price performance remains relatively calm compared to refined oil prices, hedge funds have also increased their bullish positions in Brent crude oil and West Texas Intermediate (WTI) crude oil. Hedge funds have raised their net long bets in Brent crude to the most bullish level since early Junewhen the U.S. and Iran had yet to sign a preliminary ceasefire agreement that was later abandoned by both sides. This week, Brent crude oil futures prices are gradually approaching $100 per barrel again. It is evident that "smart money" is not making a simple directional bet on crude oil prices, but rather on the shortage of middle distillates and the sustained high crack spreads for diesel. Constraints on Russian diesel exports, declines in refined oil and crude oil flows from the Middle East, refinery attacks, and low inventories have collectively compressed the "molecule" of diesel that can be delivered immediately. Even when refineries increase yields of middle distillates, they often need to sacrifice marginal gasoline production. Therefore, while crude oil prices can remain relatively stable, diesel, gasoline, and crack spreads are entering scarcity pricing firstwhich is also why the changes in European diesel positions are more worthy of attention than a simple add-on to Brent crude. Energy trading is shifting from "crude oil price Beta" to "refined oil scarcity and crack spread Alpha." If U.S. secondary sanctions truly cut off trading with Iran, passage through the two straits continues to remain sluggish, or Russian refineries are further damaged, the probability of Brent crude returning to $100 per barrel and expanding diesel profits will increase; conversely, a temporary ceasefire between the U.S. and Iran, the restoration of shipping routes, sanctions waivers, or high prices leading to demand destruction could cause crowded longs to quickly withdraw. Therefore, this set of adjustments in hedge fund positions is a strong tactical bullish signal, but it does not guarantee unconditional, indefinite structural bullishness.