Hedge Funds Dump Energy Stocks as Oil Prices Slide on Middle East Ceasefire
GerikSummary:
Goldman Sachs reports that hedge funds sold energy stocks at the fastest rate since September 2024 due to falling oil prices following a ceasefire between Israel and Iran, marking one of the largest sector exits in a decade....
Oil Price Decline Triggers Broad Energy Selloff
Hedge funds exited energy equities at a historic pace last week as crude oil prices plunged by over $10 per barrel, driven by de-escalation in Middle East tensions. According to a note from Goldman Sachs viewed by Reuters, the selloff began around June 23 and represented the second-fastest energy sector liquidation in the past 10 years, surpassed only by a wave of sales in September 2024.
This drop followed the ceasefire agreement between Israel and Iran, which reduced geopolitical risk premiums that had previously propped up oil prices. As a result, the benchmark Brent and WTI prices fell sharply from their highs near $81, with continued weakness observed on the back of reports indicating increased output from OPEC+ nations.
Global Scope: North America and Europe See Largest Outflows
The Goldman Sachs report revealed that hedge funds aggressively cut both long and short positions in energy across every major region, with the most intense repositioning occurring in North America and Europe. In European markets, funds particularly leaned into short selling—anticipating further declines in energy stock prices—while simultaneously unwinding long positions.
The sectors hardest hit included traditional oil and gas firms, consumable fuel companies, and energy equipment and services providers, indicating broad bearish sentiment on the entire energy value chain.
Leverage High but Interest Shifts to Other Sectors
Despite the energy sector’s decline, hedge fund gross leverage remains at a five-year high, underscoring that funds are still aggressively positioned—just not in energy. Goldman notes that while the energy liquidation was severe, hedge funds collectively remain net long on energy stocks, though that margin has narrowed.
Meanwhile, the broader market witnessed the strongest hedge fund equity buying in five weeks. Capital rotated into sectors perceived to benefit from macro tailwinds, including financials, technology, and industrials. This highlights a strategic reallocation rather than a broad retreat from equities.
Sentiment Fragile Amid Supply Uncertainty
With crude markets under pressure from both geopolitical détente and increased OPEC+ output signals, energy stocks may continue to face volatility. While the sector remains structurally long for many funds, last week's moves suggest a loss of confidence in short-term gains and a hedging against further downside risk.
Unless oil prices stabilize or reverse, the risk-off tone in energy may persist—particularly if broader equity markets remain buoyed by rate cut optimism and a shift toward cyclical and growth sectors.
For now, hedge funds are voting with their portfolios: reduced war premium in oil means reduced enthusiasm for energy equities.
Source: Reuters
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