Why Brent Crude Fell Below $79: US-Iran Deal, Record Hedge Fund Shorts, and the Squeeze Risk Nobody Is Talking About

3. Pandemic-Era Record Shorts

Gross Brent shorts held by managed money jumped 47.6% to 231,218 contracts, the highest level since the pandemic . Money managers also boosted negative positions on US crude (WTI) to the highest level in nearly five months . This extreme bearishness means the market is now overwhelmingly positioned for further price declines.

4. Goldman Sachs (and Others) Slash Price Forecasts

Goldman Sachs has repeatedly slashed its oil price outlook as the supply picture shifted. In mid-June, the bank cut its Q4 2026 Brent forecast to $80 per barrel (from $90) and trimmed its 2027 average forecast to $75, citing faster-than-expected Gulf supply recovery after the Strait of Hormuz deal . Morgan Stanley made similar downward revisions . Earlier in the year, Goldman had already trimmed its 2026 annual average forecast amid recession risks and higher OPEC+ supply .

The Reversal Risk: Why the Bottom May Not Hold

The extreme bearish positioning has created a classic setup for a short squeeze, and several factors make it acute.

Physical Inventories Are Critically Low

Global crude and petroleum product inventories have been drawn down at an alarming rate due to months of disrupted supply from the Middle East. US crude and petroleum stocks have fallen to their lowest level since 2004 . The EIA has warned that oil reserves across major economies are on track to hit multi-decade lows . ExxonMobil's senior vice president warned that physical Brent cargoes could spike to $150–$160 per barrel once buyers realize how tight the market truly is . JPMorgan has predicted that commercial oil inventories in the developed world could "approach operational stress levels" .

Record Short Positioning Against Tight Physical Supply

This is the core tension. As one analysis notes, "the underlying market setup reveals a crowded short positioning and tight float conditions that could trigger a sharp squeeze" . Oil traders are "shorting oil as if the Hormuz crisis is over," while roughly 13 million barrels per day of supply remain offline . Short positions in Brent have roughly tripled from late March to early June, despite the loss of roughly 13 million barrels per day of supply from the Middle East . Any delay in the physical reopening of Hormuz, or any hiccup in the US-Iran negotiations, could force hedge funds to cover shorts rapidly, driving prices sharply higher.

Backwardation Signals Near-Term Scarcity

The Brent futures curve has moved into backwardation, meaning near-term contracts trade at a premium to later-dated ones — a classic sign of immediate physical tightness that contradicts the speculative short thesis . Combined US commercial and strategic inventories have fallen roughly 90 million barrels from their peak, with the reserve heading toward its lowest level since the early 1980s .

Bottom Line

Brent's drop below $79 is driven by a powerful speculative wave betting on a swift US-Iran peace deal and the resumption of Gulf supply. However, the same record short positioning, combined with critically depleted physical inventories and backwardation, creates a high risk of a violent reversal. If the Hormuz reopening stalls or even faces delays, the short-covering rally could be explosive.