Global oil market liquidity has fallen at its fastest pace on record this year, as investors grow wary of an asset class increasingly driven by shifting headlines around the Iran conflict.

Key Highlights

  • Brent crude open interest has fallen by nearly 17% this year, the fastest pace since at least 2009.
  • Oil prices fell nearly 3% on Friday to their lowest level in almost two months.
  • The August Brent contract recorded its lowest open interest since last July.
  • A former Goldman Sachs commodities executive described the trend as driven by capital aversion.

Liquidity in global oil markets has collapsed at a record pace this year, as investors increasingly avoid committing capital to an asset class that has become highly sensitive to shifting political signals around the Iran conflict.

Open interest in Brent crude futures, a measure of how many contracts investors hold, has dropped by close to 17% so far this year, marking the fastest decline since at least 2009 based on data from LSEG. The decline reflects a broader retreat by traders from positioning in oil futures amid persistent volatility.

Market participants point to a pattern of escalating rhetoric followed by sudden claims of imminent peace deals as a key driver of trading fatigue. According to a senior executive at a major trading desk, the constantly shifting messaging has made it difficult to hold positions without being repeatedly caught on the wrong side of sharp price moves.

The volatility was on full display Friday, when oil prices fell nearly 3% to their lowest level in almost two months after a de-escalation in rhetoric around potential strikes on Iran, with officials suggesting a deal to end the conflict could be close.

Data on the front-month August Brent contract showed open interest at its lowest level since last July, even as the contract became the most actively traded at the start of this month with more than 534,000 lots outstanding. Open interest typically peaks early in a contract's life and gradually declines toward expiry, but the scale of the current decline stands out against historical patterns.

Thin liquidity tends to amplify price swings, as fewer counterparties are available to absorb large orders, forcing buyers and sellers to accept prices further from recent levels than they otherwise would. This dynamic increases both potential rewards and the risk of losses for market participants who remain active.

A former senior commodities executive at Goldman Sachs, now an adviser to an alternative asset manager, argued that oil's failure to sustainably trade above $100 a barrel in recent weeks reflects this capital aversion rather than ample supply, noting that supply has in fact been severely constrained by the near-closure of the Strait of Hormuz. He described the current year-to-date decline in open interest as the worst on record, distinguishing it from previous shocks such as 2022, which were driven by rate shocks or sanctions rather than a broad retreat from positioning.