New York: A looming shortage of Iranian oil supplies has hedge funds switching gears.

Money managers raised bets on rising Brent crude prices by the most since 2016 after three weeks of cutting wagers. The shift comes as Iran’s oil exports are shrinking, with key buyers in Asia taking fewer cargoes weeks before US-imposed sanctions take full effect.

“Hedge funds are starting to be constructive on oil again, which makes sense. We’re heading into these Iran sanctions, which is going to remove supply," said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. “The risks are to the upside, more so than to the downside."

The Persian Gulf nation shipped just under 2.1 million barrels a day of crude and condensates in August, ship-tracking data compiled by Bloomberg show. That’s the lowest since March 2016. The US said it will persuade countries which currently buy Iranian oil to cut imports by as much as 1 million barrels a day when the sanctions take effect in early November.

India and China’s combined purchases of Iranian crude will decline to almost 1 million barrels a day from about 1.3 million because of the sanctions, according to ESAI Energy.

“It has a lot to do with just lots of positive sentiment in the oil speculator market," said Rob Haworth, who helps oversee $151 billion at US Bank Wealth Management in Seattle. “It helps that Iranian production is coming down even quicker than anticipated in front of sanctions. That does help that bullish sentiment really take off."

Hedge funds’ net-long position—the difference between bets on higher prices and wagers on a drop—in Brent rose to 389,066 contracts, ICE Futures Europe data show for the week ended 28 August. That’s the highest level in seven weeks. Longs rose, while shorts fell to the lowest in almost four months.

Total positions on both Brent and WTI increased for the first time since the beginning of July.

Second-month Brent futures traded at the biggest premium to third-month futures since early July. The pattern, know as backwardation, signals a tighter market.

Money managers are bullish on West Texas Intermediate crude futures, but not as much as on Brent. That’s because of domestic pipeline capacity constraints and bottlenecks that are keeping crude landlocked and not able to flow quickly to the Gulf Coast for export.

“We have this really significant bottleneck in the Permian," said John Kilduff, a partner at New York-based hedge fund Again Capital LLC. “That will resolve itself, but for now, it’s not helping out."