(BOE Report) – The extreme volatility of global oil prices has drained liquidity from the market this year at the fastest pace on record, as investors have become increasingly wary of committing cash to an asset that has become hostage to U.S. President Donald Trump’s daily social media posts on the Iran war.
Liquidity, or how well matched the number of buyers is to the number of sellers, is the product of a number of factors, including traded volume and open interest.
Open interest, or the number of Brent crude futures contracts that investors own, has fallen by nearly 17% this year, the fastest rate since at least 2009, according to LSEG data.
Trump’s pattern of ratcheting up threats against Tehran, only to assert hours later that a peace deal is imminent, as well as the difficulty in tracking real-world oil fundamentals right now, has led to a degree of fatigue among investors, traders say.
“People are exhausted by this chaos. They want this to be over. You cannot trade futures without being constantly burned in an environment when the messaging changes every other hour,” a senior executive from a major trading desk said. The executive asked not to be named due to the sensitivity of the matter. Oil prices fell nearly 3% to their lowest in nearly two months on Friday after Trump called off threatened new strikes on Iran on Thursday, saying a deal to end the war was close.
‘TOO VOLATILE TO HOLD’
The front-month August Brent futures contract registered the lowest open interest since last July when it became the most-actively traded at the start of this month, with 534,227 lots. Open interest peaks at the start of the month and gradually dwindles until expiry of the contract, at which point, it shifts to the next month in the chain.
When liquidity becomes thin, buyers and sellers must often accept far higher, or lower prices than they otherwise would, because of a dearth of willing counterparties, thereby creating larger price swings. This increases possible rewards, but also the risk of losses.
Former Goldman Sachs commodities chief Jeffrey Currie said this week the real reason the oil price had not returned meaningfully above $100 a barrel in the past few weeks was not a sign of supply – which has been severely constricted by the near-closure of the Strait of Hormuz – being plentiful, but rather of what he called “capital aversion”. “Policy uncertainty has made oil too volatile to hold,” he said in a post on X on June 10.
“2026 year-to-date open interest decline is the worst on record. Unlike 2022, there’s no rates shock or sanctions forcing the exit. This is capital aversion,” Currie, who is a senior adviser to alternative asset manager Carlyle, said.
(Reporting by Amanda Cooper and Dmitry Zhdannikov; Editing by Alex Lawler and Emelia Sithole-Matarise)
