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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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‘’The Market Is Untradable’’ Oil Traders Grapple With Extreme Volatility

  • An increasingly illiquid oil market may lead to wild price swings.
  • Since the beginning of the war in Ukraine, traders and speculators have been cutting their open interest in crude oil futures.
  • Traders have slashed open interest in oil futures to a seven-year-low.

Sparked by the Russian invasion of Ukraine and the potential of up to 3 million bpd loss of Russian supply, the extreme volatility in oil markets is here to stay, as traders have slashed open interest in oil futures to a seven-year-low.   


The less liquid market is thus more prone to wild price swings, as seen in just two weeks, in which oil jumped and slumped by $40 a barrel in both directions. Since the beginning of March, oil prices have been more volatile than in the 2020 crash at the onset of COVID and the start of the 2008 financial crisis.  

The CBOE Crude Oil Volatility Index (INDEXCBOE: OVX) has jumped by 80% year to date to March 17.  

There’s much more volatility ahead in the near future, analysts and investment banks say. Reduced liquidity on the oil futures market will translate into more severe jumps and crashes, depending on the daily and hourly headlines from the Russian invasion in Ukraine, the status of the Iran nuclear deal, the hit to demand from surging energy prices and inflation, or the loss of Russian supply due to sanctions and self-sanctions. 

Since the beginning of the war in Ukraine, traders and speculators have been cutting their open interest in crude oil futures, also to spare themselves losses from the extreme volatility in prices. 

Portfolio managers cut their bullish bets on Brent Crude by the most in years in the week to March 8, according to data from futures exchanges. The spike in oil prices and the heightened volatility has led many hedge funds and speculators to close out long—or bullish—positions. 

The combined open interest across six energy futures—Brent, WTI, RBOB gasoline, heating oil, gasoil, and European gas—reached a five-and-a-half-year low on March 11, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said early this week. 

“Rising volatility forcing portfolio managers to reduce their exposure while traders cut position sizes,” Hansen said. 

Moreover, futures exchanges raised initial margins significantly after Putin’s war in Ukraine began, thus making trading the same amount of oil futures much more expensive. 

“The market is un-tradable, given the volatility,” hedge fund manager Gary Ross at Black Gold Investors LLC who is a veteran oil consultant, told Bloomberg.

“The volatility was too hard to stomach,” a paper trader at a large trading firm told Reuters’ Julia Payne, commenting on the crash in open interest, which makes the market less liquid and thus prone to the wildest swings in history.  

The surge in prices has led to giant margin calls across the commodities complex since Russia invaded Ukraine at the end of February. 

Even one of the largest independent commodity traders, Trafigura, is reportedly looking for financing outside its usual pool of banks, Bloomberg reported this week, citing sources with knowledge of the matter. Trafigura is said to be in talks with Blackstone for an up to $3-billion funding deal, after the trading group faced multibillion-dollar margin calls last week, according to Bloomberg. 

Via futures contracts in commodities, trading houses hedge against risks. Without commodity derivatives, many traders would not be able to move physical volumes of oil.   

The European Federation of Energy Traders (EFET), whose members include Trafigura, Vitol, Shell, and BP, among others, has urged European central banks for “time-limited emergency liquidity support to ensure that wholesale gas and power markets continued to function,” the Financial Times reported, citing a letter the federation sent earlier this month. 


“The overriding objective is to keep an orderly market for futures and other derivative energy contracts open,” Peter Styles, executive vice-chair of the EFET board, told FT in an interview.

Meanwhile, volatility in oil markets is set to continue amid uncertain outcomes in the war in Ukraine, the Iranian nuclear deal, the hit on demand from inflation and interest rate hikes, and COVID-related developments. 

“To say that oil prices have been volatile recently would be an understatement,” analysts Martijn Rats and Amy Sergeant at Morgan Stanley wrote in a note carried by Bloomberg. Morgan Stanley now sees Brent at $120 a barrel in the third quarter of 2022, up by $20 per barrel from its previous forecast. 

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on March 20 2022 said:
    The volatility of crude oil prices is due to pressure from various factors, speculations and claims being made virtually on daily basis.

    There were concerns three weeks ago that Western countries are going to sanction Russia’s oil and gas exports but these concerns abated when it became clear that this isn’t going to happen since the damage to the global economy particularly the United States and the European Union (EU) will be horrendous.

    There were also unsubstantiated claims that consumers and oil traders are shunning Russian oil exports but that proved to be a charade and wishful thinking. If that was true, crude oil prices would have skyrocketed particularly in a very tight market like the current one. Moreover, a big chunk of Russian oil goes anyway to China, the world’s largest energy market. Another chunk has increasingly been going to India and other countries while a third chunk is being bought discretely by oil traders who don’t want to miss a chance of buying discounted Russian oil.

    There has been speculation that Russia might retaliate against Western sanctions by halting its oil and gas exports to the world with the exception of China. Again this speculation led nowhere.

    Every time talks between Russia and Ukraine are announced, prices tended to go down in the hope of a ceasefire and then went up again when the talks ended without any progress towards a settlement.

    All these factors, concerns and speculations are intimately connected with the Ukraine conflict which is, in turn, behind the price volatility. End the conflict and the excessive volatility will disappear but not altogether because volatility is a second nature to oil prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Gabriel Hauser on March 21 2022 said:
    Man, are those daytraders terrible people!
    They are moving the markets and they are complaining about markets that are volatile.
    Push the pedal to the metal even without looking 10 meters before you leap.

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