Why are investors fleeing the oil market? | economy

The sharp volatility in global oil prices has withdrawn a large portion of market liquidity this year, at a pace that market data describes as the fastest ever, with investors becoming increasingly wary of pumping new money into an asset that is moving in response to rapid political statements regarding the war on Iran.

Reuters reported that open positions in Brent crude futures contracts, that is, the number of contracts held by investors that have not yet been closed, have declined by about 17% since the beginning of the year, the fastest decline since at least 2009, according to data from the London Stock Exchange Group.

This indicator represents one of the most important measures of liquidity in the oil market. The lower the number of open contracts, the lower the market’s ability to absorb large buy and sell orders without sharp price movements, and the greater the possibility that political or military news will lead to sudden jumps or drops.

Oil prices fell today, Friday, by about 3%, as Brent crude fell to about $87.3 per barrel, after touching the lowest level in about two months, with traders’ expectations changing regarding the possibilities of calm between the United States and Iran and the reopening of supply routes through the Strait of Hormuz.

Stressful market

A contraction in liquidity due to investor fatigue due to the contradictory messages issued by US President Donald Trump, between threatening a military escalation against Tehran and then talking, hours later, about the approaching peace agreement.

Reuters quoted a senior executive at a trading desk as saying that investors are “exhausted by this chaos,” adding that futures contracts cannot be traded in an environment where messages change from hour to hour without incurring continuous losses.

Low liquidity does not only mean a decline in the interest of speculators, but also a change in the nature of the market itself, as buyers and sellers find it more difficult to find counterparties at the desired prices, which widens the gap between the prices offered and requested, and makes every news capable of causing a price movement greater than usual.

This sensitivity increases because the oil market is not facing a single factor, but rather a combination of war, shipping risks, supply disruptions, global demand expectations, OPEC Plus decisions, as well as conflicting signals from Washington and Tehran.

Hormuz in the background

The Strait of Hormuz remains at the heart of this equation, as the US Energy Information Administration says that oil flows through the Strait in 2024 amounted to about 20 million barrels per day, equivalent to about 20% of the world’s consumption of oil and petroleum liquids.

The administration explains that the limited shipping movement through the strait prompted producers in the Middle East to reduce crude production by more than 11 million barrels per day in May compared to pre-war levels, which caused a large withdrawal from global stocks to meet demand.

Such shocks usually lead to higher oil prices, but what happened this year seemed more complex. Prices jumped during the stages of escalation, then fell strongly whenever there were signs of an imminent political settlement or a possible return to normal navigation through Hormuz.

The former director of commodity affairs at Goldman Sachs, Jeffrey Currie, speaks about the idea of ​​“capital aversion,” saying that the real reason for the instability of oil at levels above $100 per barrel is not the abundance of supply, but rather that political uncertainty has made oil an asset that cannot be easily maintained.

Currie wrote on the X platform that the decline in open positions since the beginning of 2026 is the worst ever, noting that what is happening is not similar to 2022 when interest shocks and sanctions imposed a forced exit from the market, but rather this time represents a voluntary withdrawal of capital.

OPEC and demand

On the supply side, OPEC Plus is trying to manage the market through limited and deliberate increases, as seven countries in the alliance announced on June 7, 2026, an increase in their production by 188 thousand barrels per day in July, as part of a partial return to the previous voluntary reductions.

However, the impact of this increase remains limited to the extent of the disruption caused by the war and shipping risks, especially if traffic restrictions in Hormuz continue or if insurance and shipping companies continue to treat the region as a high-risk area.

On the demand side, the International Energy Agency lowered its expectations in an April report, and said that global demand for oil may shrink by about 80,000 barrels per day this year due to the war on Iran, in a major shift from previous expectations that indicated demand growth.

The agency expected that the second quarter of 2026 would witness a decline of about 1.5 million barrels per day in demand, which is the largest quarterly decline since the Corona pandemic, with the decline concentrated in the Middle East, Asia and the Pacific, especially in jet fuel, liquefied petroleum gas and naphtha.

Risk without certainty

In normal markets, inventory, production, and demand data give traders a basis for pricing oil, but in the current situation, a tweet, a political statement, or a leak about negotiations could change the course of the market within minutes.

This environment creates a vicious circle; Volatility prompts investors to exit, and the exit of investors reduces liquidity, and low liquidity makes volatility more severe when any new news appears, which increases the reluctance of funds to return.