Brent hit $114.64 a barrel on Monday. Traders say thinning liquidity and mixed signals from Washington and Tehran are fuelling the wild swings. The Strait of Hormuz remains closed, keeping markets nervy.
Liquidity thins as traders pull back
The market is showing signs of fatigue. Total open interest in Brent futures fell to its lowest level in four months earlier this month, and Energy Aspects says its own measure of liquidity in Brent has dropped to the weakest point since at least April 2024. With fewer traders and wild price swings, every headline hits harder than usual.
Brent's 20-day realised volatility has climbed to levels not seen since Russia invaded Ukraine in 2022, according to market data cited by traders. Tim Skirrow, head of derivatives at Energy Aspects, points out that many speculative players are long, leaving few buyers to catch a dip, which amplifies moves when selling happens. This means algorithms and news-driven trades dominate, while human traders hesitate to act for fear of margin calls.
Traders admit fatigue
"I sense fatigue out here and less liquidity," said Scott Shelton, energy specialist at TP ICAP Group Plc. He added that a lot of market participants have pared back positions or exited entirely to protect against exploding value-at-risk calculations. "I am exhausted and my clients are there too as well," Shelton said, capturing a mood that shows up in thinner books and wider intraday swings.
Oxford Institute for Energy Studies analysts Bassam Fattouh and Ahmed Mehdi warned in a note that high realised volatility pushes traders' available risk capital toward limits quickly, and that large margin calls make it unlikely stops will be left far from current values. Point is, when volatility runs this hot, fewer players can afford to ride it out — and that makes the market more brittle.
Politics is driving price signals
Political statements are now directly influencing the market. President Donald Trump has alternated between signalling a possible winding down of the conflict and threatening heavy strikes if the Strait of Hormuz isn't reopened.
In a Truth Social post he said a deal to end the fighting was "probably" close; in the same post he warned the US would obliterate Iran's power plants, oil wells and Kharg Island if the route remained shut.
Right now, kenin Spivak, chief executive and chairman of SMI Group, told traders that while equities react to micro-developments around the potential end of the war, oil is more sensitive to the physical status of the Hormuz chokepoint. That distinction matters because, even if diplomacy edges forward, damage to refineries and pipelines can keep supplies constrained for weeks or months.
Supply risks and the price reaction
The Strait of Hormuz handles roughly 20% of the world’s oil shipments, a figure analysts have repeated as the crisis forced closures and strikes around the Gulf. Iran has struck energy infrastructure across the region; Tehran's forces hit Israel's largest refinery, while Houthi elements in the Red Sea targeted water and power facilities in Kuwait, showing how the conflict's ripple effects touch civilian energy sites as well as shipping.
Jeff Krimmel, founder of Krimmel Strategy Group, said oil prices have been "bouncing around" as traders weigh the prospects of repaired flows against ongoing attacks. Brent's rise — to about $114.64 on Monday, after earlier falls that day — left the crude benchmark up sharply over the month, putting it on course for one of its biggest monthly jumps in history, traders noted.
How traders are defending positions
When volatility spikes, value at risk climbs quickly and stop-loss orders get triggered.
Many smaller accounts have been stopped out, and market activity has dropped most visibly in the futures market and in inter-month spreads, brokers and traders say. That's part of why liquidity indicators have weakened: those who would normally buy a swing back into the market are either gone or constrained by margin requirements.
Algorithms, too, are behaving differently. Some algo desks that normally amplify intraday moves are scaling back because realised volatility is burning through capital and model limits faster than usual. The Oxford Institute analysts warned that with margin calls looming, traders won't leave wide buffers — which can worsen whipsaws when price action turns.
What this means for energy users
There are immediate knock-on effects. US national-average pump prices reached $3.99 a gallon on Monday, according to AAA figures cited by market sources, the highest level since 2022. That matters for consumers and for refiners, who face both higher crude input costs and the damage-related uncertainty about refining capacity in the Middle East.
Fixing damaged energy facilities won’t happen overnight. Even if the Strait reopens, insurance rates for ships, rerouting costs, and the need to bring damaged facilities back online mean supply-side relief won't be instant. Traders are pricing for that lag, which helps explain why gains have been persistent even amid talk of de-escalation.
Institutional players and the limits of speculation
Some larger institutional investors have been able to weather the swings better than smaller speculators, market participants say. But even big funds face constraints: margin calls, internal risk limits, and client mandates all cap how aggressive they can be when prices move fast. That helps explain why a lot of the recent activity has come from headline-chasing algos rather than steady, deep-pocketed buyers.
Energy Aspects' Tim Skirrow noted that with many speculators already positioned long, there aren't enough counterparties to buy when prices dip — and that makes the market lopsided. Add in shifting political headlines from Washington and Tehran, and you get the kind of stop-and-start moves traders have been describing this month.
Where markets go from here
Markets are now parsing two separate but related risks: the political signals that could lead to a ceasefire, and the physical damage that could keep supply tight even if fighting ends.
If diplomacy advances, traders will still want proof that shipping lanes are secure and that damaged plants are being repaired. If talks stall or threats escalate, volatility could stay elevated or worsen.
For now, traders are acting like they'd rather be out than wrong. That posture — fewer participants, more headline sensitivity — keeps oil prices capable of sudden, large moves on any fresh claim or attack, or on any sign the Hormuz choke point will stay closed longer than expected.
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Scott Shelton, energy specialist at TP ICAP Group Plc, said: "I am exhausted and my clients are there too as well."
This article was created with AI assistance.
