Oil Traders Turn Bullish for 2025
- Crude oil traders have shifted from net short to net long positions in oil and fuel futures.
- Trump’s potential re-enforcement of sanctions on Iran could reduce Iranian oil exports, particularly to China.
- Additional factors such as slowing oil production growth in the Permian Basin, China’s stabilizing demand, and OPEC+ production cuts are reinforcing bullish sentiment in the oil market.
Crude oil traders are buying more oil futures after a year of overwhelmingly negative attitudes toward the price of the commodity. The big reason for the change: Donald Trump.
Speculators have been buying more oil and fuels for three months, energy market analyst John Kemp reported recently, saying net positions in petroleum and fuel contracts swung from net short to net long between September and December 2024. At the end of the year, the net long position was equivalent to 404 million barrels, he wrote, noting that funds had been net buyers of the commodity in ten of the 16 weeks leading to December 31.
In other words, speculative players in the futures market started building their positions in oil and fuels even before the November elections in the United States in anticipation of a Trump presidency. The two reasons traders turned bullish on Trump’s victory were sanctions on Iran and tariffs.
The president-elect has made no secret of his attitude to Iran, and he demonstrated that attitude during his first term when he withdrew the United States from the Joint Comprehensive Plan of Action, commonly referred to as the Iran nuclear deal, and slapped back sanctions that the JCPOA had put an end to previously. The administration that took over in 2020 did not pay as much attention to Iran and sanction enforcement.
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As a result, Iran boosted both its production of crude oil and exports, with the latter jumping by over 10% last year to a total of 587 million barrels. The overwhelming bulk of that went to China, which suggests that whatever way Trump chooses to tighten sanction enforcement, it would have an impact on U.S.-Chinese relations.
As regards tariffs, the U.S. president-elect has declared he would turn these into his preferred method of boosting U.S. exports and strengthening the country’s trade balance with some major partners, including Canada and the European Union. “I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas,” Trump posted on the social media platform Truth Social in December. “Otherwise, it is TARIFFS all the way!!!”
The United States is currently running a trade deficit of $240 billion with Europe, per Reuters. The biggest exporters to the U.S. are Germany, Italy, Ireland, and Sweden, according to Eurostat, accounting for the bulk of that trade deficit. The United States is the EU’s biggest trade partner, and oil and natural gas are among the top U.S. imports into Europe.
In fairness, the EU stepped up its purchases of U.S. liquefied natural gas in December as winter proper set in, and the levels of gas in storage began declining faster. However, it would take a lot more work to eliminate the deficit, and that work would certainly be bullish for crude oil—both in terms of stronger demand for the physical commodity and in terms of demand for a hedge against expected inflation.
Bloomberg reported this week that long-only oil positions among funds had gone up by a sizable 41% in just the past three weeks, with short bets down by a third, according to data from the Commodity Futures Trading Commission. The publication attributed the trend to algorithmic traders relying on so-called technical indicators, which appear to be pointing due bulls. At the same time, fundamentals are also supportive of higher prices.
Among the factors to add to Iran sanctions and Trump’s weakness for tariffs are reports that oil production growth in the Permian is nearing its limits and a perception that China’s apparent demand growth weakness is also reaching its limits, according to one BOK Financial Securities analyst.
“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,” Pimco Commodity’s portfolio management head, Greg Sharenow, told Bloomberg as well.
It appears that the closer January 20th draws, the more bullish traders are becoming, increasingly likely to ignore forecasts predicting a further slowdown in demand growth, persistent oversupply, and an overall bearish context in the oil market. This is an interesting development, given that just a few weeks ago—and after the November elections in the U.S.—traders seemed to buy those forecasts in bulk.
The most recent fundamentals data is adding further support to the bullish mood. OPEC+ production data for December this week showed that the total for OPEC was down overall last month, and Russia’s daily average had dipped below the level it had agreed with OPEC as part of their supply control deal.
There are still analysts insisting on oversupply preventing oil from breaking out this year, and this is unlikely to change, at least until oil does break out if it does. With Trump in the White House, talking about using military force to restore U.S. control over the Panama Canal and acquire such control over Greenland, a breakout seems a definite possibility.