Hormuz Talks May Prove More Consequential Than Trump's Oil Price Impact

Oil prices retreated after US President Donald Trump's comments on diplomatic engagements between the US and Iran, but analysts say that talks over ending the Strait of Hormuz blockade could prove far more consequential.

The signing of the US-Iran Memorandum of Understanding triggered a massive hedge fund sell-off for crude futures and options, but the closure of the Strait of Hormuz and now the Bab el-Mandeb has made bullishness in vogue again.

According to data, net positions held by hedge funds and other money managers in ICE Brent futures and options rebounded to 192 million barrels, a 2-month high, in the week ending July 21. This is a significant increase from stagnant positioning in Nymex WTI throughout June-July.

Interestingly, lower trading activity in crude futures has been widening price swings, as attested by last week's price rally and this week's sudden drop.