Oil traders are anticipating a sharp spike in prices that will likely bring on a business cycle slowdown after Russia’s invasion of Ukraine was met by severe sanctions that are disrupting the country’s petroleum exports.

Hedge funds and other money managers purchased the equivalent of 16 million barrels in the six most important petroleum futures and options contracts in the week to March 1, according to exchange and regulatory data.

Portfolio managers remain strongly bullish towards petroleum, with a net long position of 731 million barrels, which lies in the 65th percentile for all weeks since 2013.

Bullish long positions outnumber bearish short ones by a ratio of almost 7:1, in the 84th percentile, but the overall position has not changed much since the middle of January.

Last week’s position changes were driven primarily by the reduction of previous bearish short positions (-20 million barrels) rather than creation of new bullish long ones (-4 million barrels).

The disruption to Russia’s exports caused by the invasion and sanctions has significantly increased the probability of a spike in oil prices and forced the closure of short positions.

After adjusting for inflation, Brent prices are trading at the highest level since July 2014 and are in the 87th percentile for all months since 1990.

If sustained, oil prices at this level are consistent with a reduction in oil demand through fuel conservation or a recessionary adjustment in the level of economic activity.

The combination of high energy prices and other disruptions to global supply chains has significantly increased the threat of a mid-cycle slowdown or an end-of-cycle recession in Europe and the United States.

In response, portfolio managers sold middle distillates such as European gas oil and U.S. diesel last week for the fourth week in a row, reflecting the worsening outlook for the global economy.

Middle distillates are mostly used in freight transport, passenger aviation, manufacturing and agriculture, so they are the most sensitive to changes in the business cycle and international flying.

Fund managers cut their overall bullish long position in distillates to 118 million barrels last week from a peak of 144 million barrels at the start of February.

If prices remain at their current level for the next few months, the probability of a recession in North America and Europe would be high, which would force oil consumption back into line with production.

(John Kemp is a Reuters market analyst. The views expressed are his own.) (Editing by Bernadette Baum)