Hedge funds significantly increased their bullish bets on crude oil in late February 2026, driven almost entirely by escalating geopolitical tensions. This period saw speculative net-long positions in Brent and WTI crude reach their highest levels in many months, signaling a strong belief among major investors that prices are headed higher.
The primary cause for this market shift is the intensifying standoff between the United States and Iran. Reports from late February confirmed one of the largest U.S. military deployments to the Middle East in decades, featuring two aircraft carrier strike groups and over 150 additional aircraft. This substantial show of force has led market participants to believe that the probability of direct military action, which could disrupt oil supply, has meaningfully increased. Diplomatic talks held in mid-February failed to produce a breakthrough, further cementing these fears.
Consequently, traders are pricing in what’s known as a 'geopolitical risk premium'. This is an extra cost added to the price of oil to compensate for the risk that a conflict could interrupt the flow of crude from a critical region like the Middle East, through which about 20% of the world's oil transits. Analysts at firms like Goldman Sachs estimate this premium is currently around $6 per barrel, accounting for over 8% of the price of Brent crude, which hovered near $72 per barrel.
What makes this situation particularly noteworthy is that the buying frenzy is happening despite some bearish fundamental signals. For instance, the U.S. Energy Information Administration (EIA) reported a massive 16 million-barrel increase in domestic crude inventories in the week ending February 25. Typically, such a large build in supply would push prices down. However, the market has largely ignored this data, demonstrating that the fear of a potential conflict is currently a more powerful driver than traditional supply-and-demand logic. This dynamic encouraged momentum-driven funds to maintain their long positions, viewing the price resilience as a sign of strength.
This rapid build in bullish positioning started from a low base set in late 2025, when concerns about oversupply dominated. The sharp pivot shows how quickly market sentiment can change when geopolitics takes center stage. For now, oil prices are being dictated more by military movements and diplomatic headlines than by inventory reports.
- Geopolitical Risk Premium: An additional amount included in the price of a commodity, like oil, to compensate for the risk of supply disruptions due to political or military conflicts in a producing region.
- Net-Long Position: When traders collectively hold more contracts betting on a price increase (long positions) than contracts betting on a price decrease (short positions). A high net-long position indicates overall bullish sentiment.