The oil market is too volatile; investors have had enough as funds withdraw at a record pace

Source: Global Market Briefing

The global oil price has experienced intense volatility this year, leading to the fastest liquidity drain on record in the market, as investors are increasingly reluctant to allocate funds to this asset, which is being swayed by frequent social media statements from U.S. President Trump regarding the war with Iran.

Liquidity, which denotes how well buyers and sellers are matched, is determined by various factors, including trading volume and open interest.

According to data from the London Stock Exchange Group LCOTOT, open interest (the number of Brent crude oil futures contracts held by investors) has fallen nearly 17% since the start of this year, marking the fastest decline since at least 2009.

Traders say that Trump’s escalating threats to Tehran, only to announce that a peace deal is imminent hours later, coupled with the current difficulty in tracking the real-world oil supply and demand fundamentals, have led to a certain degree of fatigue among investors.

“People are exhausted by this chaos. They want all of this to end as soon as possible. In an environment where the information changes every hour, it is almost unavoidable to constantly suffer losses when trading futures,” an executive at a major trading institution said. Due to the sensitivity of the matter, the executive requested anonymity.

Oil prices fell nearly 3% last Friday, hitting their lowest level in nearly two months. On Thursday, Trump called off a planned new round of strikes on Iran and said a deal to end the war was near.

“Volatility is too high, not suitable for holding”

Open interest in the August Brent futures contract (the front-month contract), which became the most active contract at the beginning of this month, dropped to 534,227 lots, the lowest since July last year. Open interest typically peaks at the beginning of each month and gradually declines until contract expiration, at which point trading shifts to the next month’s contract.

When market liquidity becomes thin, the lack of trading counterparts often means that buyers and sellers have to accept prices far above or below normal levels, thus amplifying price volatility. While this may increase gains, it simultaneously magnifies the risk of loss.

Former Goldman Sachs Head of Commodities Jeffrey Currie said this week that the real reason oil prices have failed to rebound significantly above $100 a barrel in recent weeks is not ample supply (in fact, supply has been severely constrained due to the near-closure of the Strait of Hormuz) but what he calls “capital avoidance.”

He wrote on platform X on June 10: “Policy uncertainty has made oil too volatile to hold.”

“The decline in open interest since 2026 is the most severe on record. Unlike in 2022, this time there has been neither a shock from interest rates nor sanctions forcing investors out. This time, it is due to capital avoidance,” said Currie, now a Senior Advisor at alternative asset management firm The Carlyle Group.