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

LONDON- Hedge funds purchased oil last week at the fastest rate for almost a year, as escalating tensions in the Middle East and hopes for a cut in U.S. interest rates outweighed concerns about flagging global growth.

Hedge funds and other money managers bought the equivalent of 84 million barrels in the six most important petroleum futures and options contracts in the week to July 16, the largest weekly increase since August 2018.

Funds were buyers last week of Brent crude (+36 million barrels), NYMEX and ICE West Texas Intermediate crude (+29 million), U.S. gasoline (+6 million), U.S. heating oil (+2 million) and European gasoil (+11 million barrels).

Portfolio managers have bought 125 million barrels of crude and fuels in the last four weeks, after selling 389 million barrels over the previous eight weeks, exchange and regulatory records show.

Funds remain cautious on the price outlook, with net long positions totalling just 647 million barrels, down from recent highs of 911 million in late April and 1.099 billion in September 2018.

And the ratio of hedge fund long to short positions, perhaps the most useful measure of bullishness, was still only 4.5:1 last week, down from 8.1:1 in April and 12.4:1 in September.

But late June and early July have seen a significant and sustained reversal in the previous trend from selling to buying .

For now, most fund managers appear to have concluded the balance of risks has shifted firmly towards the upside.

From a positioning perspective, short positions remain high, creating the potential for more short-covering to support price gains, while long positions are low, leaving plenty of headroom for funds to add to their holdings.

From a fundamental perspective, the worsening standoff between Iran and the United States and its allies in the Middle East is increasing the threat of further disruption to oil supplies.

At the same time, senior policymakers at the Federal Reserve have been hinting they will cut interest rates at the end of the month in an effort to keep the U.S. economy expanding.

The anticipated cut in U.S. rates is part of a worldwide cycle of monetary easing by major central banks in response to signs of slowing growth.

Rate cuts should reduce the U.S. dollar’s value versus the currencies of major oil-importing nations such as India and China, which would support local consumption and push dollar prices higher.

More generally, lower interest rates should help boost global economic growth and oil consumption over the next 12-18 months, provided the global economy avoids recession.

(Editing by Dale Hudson) ((john.kemp@thomsonreuters.com and on twitter @JKempEnergy))