Middle East "black swan" triggers epic volatility: oil prices soar before plummeting, traders cry out "total panic"

Even by the roller-coaster standards of the global oil market, Monday's extreme market conditions are testing the limits of traders. As the largest commodity in global trading volume, the price of the oil benchmark contract soared 29% amidst a deluge of negative news over the weekend as the Middle East crisis deepened. With actual oil production frozen in the Persian Gulf oil-producing countries, maritime traffic at the Strait of Hormuz nearly stalled, and no solution in sight, Brent crude oil futures surged to nearly $120 a barrel in the first few hours of trading, reaching their highest level since mid-2022. However, market sentiment quickly shifted, forcing traders to turn around urgently. The two largest contracts in the oil market eventually closed lower, giving back most of the day's gains. "I love this kind of volatility, but it is also exhausting." Toby Copson, the China portfolio manager for Davenport Energy, a commodities trading company, said, "Everyone is working overtime, and few of us can get a good night's sleep. Fundamentally, we understand the driving factors behind it, but all the headlines and tweets are really testing our stress limits." The Group of Seven (G7) took steps to coordinate the release of strategic oil reserves, initially cooling off the early gains. However, US President Trump's comments that the conflict may soon end led to a rapid cooldown in the market. For Brent crude oil, it was the largest intraday drop from its high point to the closing price in its history, comparable to the volatility seen during the COVID-19 pandemic. While traders can often profit from market fluctuations, extreme volatility like that seen on Monday is not common. The dramatic headlines and significant price swings this week have even made some experienced market veterans uneasy, reminiscent of the commodity price surge following the Russia-Ukraine conflict in 2022 and the day in 2020 when WTI futures briefly traded at negative values. "This is total panic trading." Nick Twidale, an analyst with 27 years of market experience at AT Global Markets, said. By 6 a.m. on Monday, he was already at his desk in Sydney. "My phone was buzzing every 10 seconds - ding, ding, ding - everyone from traders to clients to industry insiders was asking the same question: 'What's going on with oil?'" The Middle East crisis began at the end of last month when US forces began attacking Iran. Tehran retaliated, targeting bases and infrastructure in the region, disrupting the situation in the entire Persian Gulf. Before Monday's opening, concerns about the duration of this war that has already impacted the global economy grew. "When geopolitical decisions drive price movements, investors feel out of control." Stefano Grasso, a former oil and natural gas trader and current senior portfolio manager at Singapore hedge fund 8VantEdge Pte, said, "The market is experiencing more than just volatility, it's a sense of helplessness." In addition to oil, other commodities, from base metals, precious metals to Shenzhen Agricultural Power Group, saw large price swings on Monday. Traders are trying to digest the market dysfunctions already visible and anticipate potential troubles in the future. Among these, aluminum prices reached their highest levels since 2022, silver prices plummeted by nearly 6%, and gold prices were pressured to drop due to a strengthening dollar. The natural gas market also fell into turmoil. As oil prices surged, liquefied natural gas buyers in Asia, especially in emerging markets, began to panic, fearing a global supply scramble. Issues with Qatar's largest liquefied natural gas export facility, caused by the war, continued without any sign of resolution. According to traders, GAIL India Ltd., the Indian natural gas company, failed to procure a batch of liquefied natural gas shipments for March delivery through bidding on Monday, as there were no available surplus shipments for that month. Traders added that Thai buyers were trying to lock in near-term shipments from suppliers in Malaysia and other regions. "The best course of action is to maintain discipline: ensure position sizes are reasonable, focus on risk management rather than prediction." Grasso from 8VantEdge said, "The market is trying to price in political decisions that can change overnight. This naturally leads to extreme volatility." The crazy market conditions for oil continued into Tuesday, with oil prices listed on the New York Mercantile Exchange triggering circuit breakers within the first two minutes of trading. After trading resumed, WTI crude oil futures fell as much as 11%, but are still higher than pre-war levels. "Is the worst over yet? Perhaps." Twidale said, "Trading now is following every headline, which is very challenging."