Crude Oil 'Plunges in a Week': Just 8 Days Ago, It Was 'Burning with War'—After the Midterm Elections, Hedge Funds Dumped $6.6 Billion

Subsequently, the midterm election results became the final straw that broke the bulls’ back. Quinn wrote: 'The Democratic sweep triggered market narratives about constraints on Trump’s agenda—especially regarding funding for overseas military operations and other foreign policy commitments.' Brent crude plunged 8.7% in a single day on November 4, with open interest declining by $2.7 billion. This process followed a classic structure: 'active funds lead, trend-following passive funds follow.' Active hedge funds initiated the sell-off, and CTAs (Commodity Trading Advisors) joined passively afterward. Historical precedent: The two weeks following the crash remain the 'darkest period' After large-scale selling, markets typically enter a sustained digestion phase. Quinn reviewed history since last year’s so-called 'Reciprocal Tariff Day' and found that after each of the previous three instances of similarly sized managed-money sell-offs in Brent crude, negative fund flows persisted for roughly two weeks—with the June 2026 U.S.-Iran Memorandum of Understanding (MOU) case being most emblematic. Back then, markets had already priced in expectations of a Strait of Hormuz agreement in May, resulting in Brent’s largest monthly decline in six years; the MOU was signed in June, yet the conflict continued for another five months. However, a powerful counterexample exists: From May 28 to June 4, 2024, hedge funds sold $7.9 billion worth of Brent crude following OPEC’s announcement ending its 'voluntary' production cuts. Shortly thereafter, OPEC ministers publicly pushed back against the market reaction, and managed-money net long positions fully recovered. Quinn noted that this rapid reversal hinged on 'policymakers stepping in to tell the market it overreacted.' Options market sees early buyers returning to call options Although the spot market remains under pressure, notable signals have emerged in the options market. Quinn pointed out in his report that Brent crude rebounded 3.9% from November 5–6, while three-month implied volatility rose, the 25-delta put-call skew narrowed, and call options were actively repurchased. This combination of signals suggests some traders are already positioning for a return of war-related premium. UBS’s Dominic Ellis warned on Thursday that 'fundamentals still provide support,' noting that the global drawdown of nearly 700 million barrels of inventory will not automatically reverse due to a change in congressional control—and added that markets have repeatedly overpriced de-escalation over the past seven months: 'I worry the same thing may be happening again now.' On the physical side, Gulf-region crude supply is returning to the market, and Dubai benchmark prices have slipped into contango—the first time since July—providing some support for short positions. Yet according to Reuters’ citation of UK Maritime Trade Operations (UKMTO) data, attacks on tankers remain near historical peaks; Iran’s top security official insists the Strait of Hormuz will remain closed until Washington meets all seven of Tehran’s conditions. Moreover, Goldman Sachs’ Rich Privorotsky observed that gold has become a reverse trade to crude oil—on the day Brent crashed, gold rose over 3%. Should the war premium return to oil, gold may accordingly give back part of its gains. 'We’re not at war'—but they struck again Friday night Just as markets were digesting all the above, the situation took a new turn.

WTI Crude Breaks Below $70: Geopolitical Premium Fully Erased; Inflation and Rate-Hike Expectations Deliver a 'Double Blow'

Hormuz Unlocked: Stranded Tankers Gradually Depart According to shipping data cited by Reuters, three tankers sailed out of the Strait of Hormuz on Wednesday, carrying approximately 5 million barrels of crude oil—two bound for Asia. Crude cargoes previously stranded in the Gulf due to wartime factors are now gradually being released as the U.S.-Iran interim agreement takes effect. Oman has announced that the Strait of Hormuz remains open to shipping, imposes no transit fees, and has designated temporary shipping lanes on both the northern and southern sides of the existing channel to ensure vessel safety. Physical crude market behavior confirms the sharp shift in supply expectations—spot crude premiums/discounts globally have all turned to discounts, and trade flows have accordingly shifted. Tim Waterer, Chief Market Analyst at KCM Trade, stated: 'Although these are only preliminary signs, the market is already pricing in the broad scenario of Iranian oil returning to global markets and the Strait of Hormuz returning to normal operations.' He further noted: 'Should sanctions be eased, given the large volumes of crude currently stored aboard tankers, Iranian output and exports could ramp up quite rapidly—we’re talking about a timeframe measured in weeks, not months.' Supply expectations drive pricing; geopolitical premium fades rapidly The core driver behind this oil price correction is the market’s pricing-in of a large-scale return of Iranian oil supply. Washington has granted Tehran a 60-day sanctions waiver, permitting Iranian oil sales during negotiations; tensions in Lebanon have also eased simultaneously. These two developments together have rapidly erased the geopolitical risk premium that previously supported oil prices. In terms of price movement, Brent crude has fallen over 40% from its wartime peak, while European natural gas prices have dropped even more sharply—by 45% from their wartime highs. John Conlon of Greenlight Commodities told media that if Iranian oil continues entering the market, oil prices could move further toward the $60-per-barrel range. Nonetheless, the durability of the U.S.-Iran agreement remains uncertain. Trump stated on Tuesday that Iran had agreed to 'indefinite' inspections—but Tehran denied having made such a concession. Mark Malek, Chief Investment Officer at Siebert Financial, warned: 'The market is currently overconfident in a favorable outcome, while underpricing the risks posed by the unresolved nuclear issue and disputes over inspection protocols.' Cooling inflation expectations prompt global monetary policy repricing The rapid decline in energy prices is systematically reshaping central banks’ policy path expectations—and directly offsetting the inflationary pressures previously exacerbated by soaring oil prices. In Europe, both Nomura Securities and RBC Capital Markets lowered their European Central Bank (ECB) rate-hike expectations on Tuesday: Nomura revised its forecast from three hikes down to two; RBC now expects only one hike.

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