U.S. hedge funds are shifting capital into crude oil stocks as tensions in the Middle East escalate, according to data from investment bank Goldman Sachs (GS).
Prime brokerage data from Goldman Sachs shows that hedge funds have been net buyers of oil stocks for three consecutive weeks as the military conflict between Israel and its neighbors in the region intensifies and crude prices move higher.
Brent crude oil, the international standard, is currently trading at $86 U.S. a barrel, though it had been as high as $90 U.S. a week ago.
West Texas Intermediate (WTI) crude oil, the American standard, is currently trading at $82 U.S. a barrel, down from more than $85 U.S. last week.
Six months ago, crude oil prices were hovering around $70 U.S. per barrel but have climbed higher this year as Middle East tensions ratchet up.
Hedge fund purchases of oil stocks come as the volume of bullish Brent crude options reach record levels.
Traders are betting on further increases in crude oil prices after Israel vowed to respond to Iran’s recent missile attack.
Some options traders are now betting on crude prices reaching $250 U.S. a barrel in coming months, according to market data.
Energy stocks have rallied so far in 2024 after slumping throughout last year.
The U.S. energy sector is up 13% year to date, making it the second-best performing sector in the benchmark S&P 500 index.
Wall Street traders see further gains ahead. Goldman Sachs has upgraded the U.S. energy sector to a buy equivalent “overweight” rating based on rising oil prices and compelling valuations.