Despite a 41% monthly loss, they increased their position! Crude oil shorts with $977 million are betting heavily that the Iran conflict will end soon.

Zhitong Finance APP learned that, although most crude oil short positions have suffered heavy losses to date, a group of traders is currently moving to significantly increase leverage, betting that the oil price—boosted by geopolitical conflict—will drop sharply.

Data show that in March, ETF investors allocated $977 million toward the 2x short of the Bloomberg Crude Oil ETF-ProShares (SCO.US)—including both short positions newly opened against the trend and traders “doubling down” on existing positions, setting the highest monthly inflow record for the fund since its inception in 2008. SCO is designed to deliver inverse returns that are twice the daily price volatility of crude oil. Despite the record inflow, the fund’s current total assets are only $970 million, even below the fund’s total net inflow for the month.

Asym 500 founder Rocky Fishman said bluntly: “This is a trade that bets ‘the fighting will end soon.’”

On Tuesday, after Trump again signaled that the Iran conflict could be coming to an end, the fund surged 8% in a single day. However, even so, the ETF still fell 41% cumulatively in March, marking its worst monthly performance in nearly six years. In sharp contrast, its tracked benchmark index rose 25% over the same period.

In March, Brent crude oil briefly touched $119 per barrel, before falling to around $102 at the beginning of April, but it is still far above the $72 closing price at the end of February.

Even if a ceasefire holds, short sellers may not be able to get out of trouble. It is estimated that actual disruption in the Strait of Hormuz has affected about one-fifth of global crude oil supply. Analysts noted that, because shipping routes are being replanned and spot markets are readjusting, oil prices may remain elevated for the coming months—meaning that short positions betting on a resolution need not only a calming of the situation, but also a rapid return to normal, which is precisely a scenario that few people expect.

Although the market has remained optimistic that conditions may ease, this week’s attack incidents are still ongoing. A tanker was attacked near Qatar, and the UK Navy said the attack sparked a fire that has been put out.

However, being bearish is only one side of the market. Bullish money also hit record levels—US crude oil ETF (USO.US) attracted about $700 million in March, its largest monthly inflow since the pandemic; the US Brent crude oil fund (BNO.US) absorbed $600 million, setting a historical high. The result is increased market divergence, with leveraged funds—against a backdrop where conflict-driven price moves are difficult to predict—placing bets on both the long and short sides.

Todd Sohn, chief ETF strategist at Strategas Securities, said: “I think the money flowing into SCO reflects a variety of factors, including directional trades betting on the direction of a crude oil price reversal, as well as hedging and arbitrage behavior. Especially when these kinds of special funds become a ‘market focus,’ this tends to happen.”

Meanwhile, Fishman believes that although some ETF demand may come from technical factors such as short-selling market making, the March fund flows primarily reflect purely directional bets.