Hedge funds reduced bullish positions in crude oil by the most since June ahead of a sharp post-election selloff, as signs of diplomatic progress between the US and Iran prompted managers to scale back exposure to rising energy prices, according to a report by Bloomberg.

Money managers cut their combined net-long positions in Brent and West Texas Intermediate futures by 78,492 contracts to 272,075 in the week ending 3 November, according to data from ICE Futures Europe and the US Commodity Futures Trading Commission. The reduction was the largest since the summer, when Washington and Tehran reached an interim agreement to reopen the Strait of Hormuz.

The shift in positioning came as both governments signalled greater willingness to pursue negotiations. Iran's supreme leader authorised diplomatic discussions, while US President Donald Trump reportedly told Israeli Prime Minister Benjamin Netanyahu that he wanted to give negotiations an opportunity to succeed.

Crude prices subsequently fell sharply following the Democratic Party's decisive victory in the US midterm elections, with investors anticipating greater political pressure on the administration to end the Iran conflict and reduce domestic energy costs.

The reduction in bullish positioning left hedge funds better placed for the subsequent decline in prices, highlighting how shifting geopolitical expectations are driving rapid changes in commodity market exposure after months of disruption to Middle Eastern oil supplies.