The Futures Market is where the Imbeciles go nuts.
By Wolf Richter for WOLF STREET.
Futures of US crude oil grade WTI collapsed by 24% back to $87.70 a barrel, and at one point as low as $83, after they’d spiked by 28% from about $90 on Friday to over $116 overnight on Sunday. Historic massive ridiculous volatility. That spike occurred on sheer maniac speculation, triggered by context-less headlines, and a whole generation of traders that have been waiting their entire career for the moment when the Strait of Hormuz gets blocked so that they could go hog-wild.
As I like to say, this is the same market where the price of WTI futures dropped to an absurd negative -$37.63 per barrel in April 2020. The futures market is where the imbeciles go nuts.
These crazy price movements make crude oil futures look like cryptos, meme stocks, other crazy stocks, SPACs, IPO stocks, whatever, many of which have entered into our pantheon of Imploded Stocks. Manic speculation and gambling were driving this. But unlike cryptos and meme stocks and similar stuff, crude oil prices do matter, and a lot (hourly chart via Investing.com):
The discussions among the G7 Nations to release some crude oil from their strategic petroleum reserves is aimed not at increasing supply, because that’s not what is needed at this point, but at hammering down the imbeciles in the futures markets.
The US SPR has 415 million barrels of crude oil in it, down from 727 million barrels at the peak in 2011. By the time Biden moved into the White House, the SPR was down to 638 million barrels. Given the large production in the US, and the exports, the SPR is no longer needed to deal with shortages and OPEC boycotts, which had been the original purpose, but to hammer down the imbeciles in the futures market.
Trump was out there too, hammering down the imbeciles in the futures market and said he’ll wave some sanctions on Russian oil, and that Iran is a “short-term excursion” and that it will be over “very soon.”
The US imports very little crude oil that comes through the Strait of Hormuz. Only 2% of the US petroleum liquids consumption came through the Strait of Hormuz in 2024, the lowest in 40 years. The US is the biggest oil producer in the world. It exports more crude oil and petroleum products than it imports. It imports crude oil, refines it, and exports diesel, gasoline, jet fuel, etc. Even refineries in “oil island” California are in on that trade. To Mexico alone, US refiners exported 1.1 million barrels a day of diesel, gasoline, and other petroleum products. In total, the US exported 6.7 MMb/d in petroleum products in 2025, including 2.3 MMb/d in transportation fuels (diesel, gasoline, and jet fuel).
Refining and then exporting the product is a huge business, and it matters to the US supply, but the Strait of Hormuz doesn’t fundamentally matter to the US supply, and there is no fundamental reason for US crude oil prices to spike like this.
Crude oil is now a global product for the US since the US is a big exporter of crude oil and petroleum products, and so manic speculation goes in tandem across the world.
Gasoline futures did a similar roundtrip. Today plunged by 16% back to $2.69, and at one point as low as $2.55, after they’d spiked by 16% from $2.75 at the close on Friday to $3.20 overnight on Sunday. This stuff is just nuts (hourly chart via Investing.com):
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Given all the refining capacity being knocked out across Asia this seems pretty bullish for US exporters
Guess someone closed their short position.
Damn the torpedoes [speculators] full speed ahead!
Why does anyone believe anything he says?
Why does everyone overreact to everything he says?
TDS is the only explanation for their heads exploding.
We at war. People are dying, cities are getting blown up. It’s not a game.
Trump Distraction Syndrome. There two ways he accomplishes this. 1) Trump takes extreme positions all the time and then does a 180, that’s why we have the term TACO. 2) You also have to admit that he talks a lot but never really says much, and it’s usually in circles. So that’s why my head explodes, because to a normal person it sounds like rambling insanity. So if it’s on purpose, to try and distract you so he doesn’t have to give any type of lucid response, it’s brilliant.
Cause no one ever overreacted to a president sitting down or wearing a tan suit before.
Cuz he’s says crazy shit man
And yet here we are.
It’s crazy that any politician can go say a few words and be a snake charmer to cause the market to swing in a matter of minutes.
@Curiouscat – Why believe anything he says?
Why?
Easy – He keeps winning and Dems/Libs keep getting it wrong at every turn…
Wolf spells it out and this is what you throw out to the public square?
Literally at the bell today the Dem/lib media was still screaming last week’s spike doom. Ignoring today’s close – today’s reality – Bubble much?
Liberals stuck on hate Trump / Orange Man Bad?
And amnesia everywhere – Biden 2024 gas / oil higher – No US conflict- No Hormuz shutdown.
Imported heavy after Biden Exec. Ordered all Trump energy moves. Ooops then drained the SPR.
Now? US pumping near records again – Don’t need Iran’s oil mess.
People believe him ’cause results show up.
Data over drama every time –
Drill Baby Drill –
Peace Through Strength-
DEI is Dead –
Men can’t become Women EVER –
Child gender transitions NEVER –
Borders Matter ALWAYS –
It turns out if you start a Middle East war, you drive up the price to make shale oil more profitable.
Believe what? That he’ll wait sanctions or that the war will be over soon? The former I believe. The later, not so much insomuch that any war with a theocracy can be ended sans destroying the theocracy and the want for it.
But both impact oil prices. If you believe neither, seem like you have an amazing chance to buy some futures contracts. Better get your paperwork in order to receive and store because I think that is still an oil trading requirement.
wait…waive.
also – looks like I was mistaken on need to take delivery as you can trade derivatives. For some reason I thought that was a requirement otherwise I would’ve loaded up on super cheap crude in 2020
For a speculative futures market you don’t need to believe Teump, you only need to believe that others believe him. Doesn’t mean the price of oil will stay down or go up (wait a few weeks to know) but his statements appear to have thrown a wrench in what it looks like was a panic.
Howdy Youngins. Looks like the war is over. Back to normal insanity. Guess the stockBOYS will start screaming lower rates again…
Howdy Bubba,
War over? Don’t believe your lying ears. I heard it too, but there’s more going on in the MiddleEast than our President is revealing. That claim was pure media catnip and market manipulation. Wait until next week this time, you’ll have a different picture.
Regards, –Geezer
First thing they teach you at a military war college:
“The enemy gets a vote”
The war is over when BOTH sides decide it is over. It is very clear the Trump didn’t understand this part.
Pricing WTI at world prices is a farce started in the early 1980s on the Merc. The price of do.wstic production should reflect domestic demand. That is the year majors lost control of pricing.
The absurdity is simple. If a utility in Chicago is selling water for 10 cents a gallon it has nothing to do with selling water in Atlanta.
Another scam perpetrated by speculators.
We always have the option to stop exploring
*exporting
I imagine some West Texas producers with the ability to physically deliver on the contract did quite well shorting at 116…
Insanity for sure! Someone made money though.
Yes. someone made money and someone got hosed. But they all TRIED to make money.
A pearl of wisdom but no point casting it before swine
Oil trading is a terribly dangerous endeavor. I tried once with an EFT that actually lost value while WTI went up.
So are oil futures not regulated at all or trading can’t be halted?
This post reminds me of the pork bellies scene from the movie “Trading Places” with Dan Aykroyd and Eddie Murphy (character: Billy Ray Valentine)
Randolph Duke: Exactly why do you think the price of pork bellies is going to keep going down, William?
Billy Ray Valentine: Okay. Pork belly prices have been dropping all morning, which means that everybody’s waiting for it to hit rock bottom so they can buy cheap and go long. Which means that the people who own the pork belly contracts are goin’ bat-shit. They’re saying, “Hey, we’re losing all our goddamn money, and Christmas is just around the corner, and I ain’t gonna have no money to buy my son the G.I. Joe with the kung-fu grip, right? And my wife won’t f… my wife won’t make love to me ‘cuz I ain’t got no money, right?” So they’re panicking right now, they’re screaming “SELL! SELL!” to get out before the price keeps dropping. They’re panicking out there right now! I can feel it! They out there!
Randolph Duke: [on the ticker machine, the price keeps dropping] He’s right, Mortimer! My God, look at it!
Billy Ray Valentine: I’d wait until you get to around sixty-four, THEN I’d buy. You’ll have cleared out all the suckers by then.
Randolph Duke: This is Randolph Duke. Advise our clients interested in bellies to buy at sixty-four. Mr. Valentine has set the price.
[He punches up the numbers on his calculator]
Randolph Duke: Do you realize how much money he just saved us?
Funny how life imitates art….
Classic!
Epstein class TACO party! Woooo!!
The oil commodities futures markets were a stunning innovation by the late great now-pardoned commodities trading criminal MARC RICH, husband of Denise Rich, back in 1983. They have provided amazing and endless entertainment ever since then and promise even more gambling pleasures in the future as they move towards their 50th Anniversary!
Costco prices still too dang high!!
As of whatever the date today is
Local evening news: “Oil prices are soaring!”
Uhh, Soaring 10% lower???
Even though domestic U.S. crude and NG are sourced to a negligible degree through the Straits of Hormuz, domestic supplies can and will be diverted to places that do source through there, like Asia. Which raises the marginal cost in the USA … for uncontracted supply.
Sources I do not trust when it comes to messaging about the war: Trump, Hegseth, Rubio, Bibi, US Media, Israeli Media, Iran … basically all of them. I’ll believe it’s over when the force majeure is lifted and insurers are again insuring tankers that traverse the Straits. Those are signals that can be trusted and not subject to propagandizing.
Today felt like a catch them offsides type short squeeze in the equity markets, and none of DJT’s lipservice about the imminent end of the war addresses (1) the jobs issue, (2) the private equity issue. Those two were weighing on the markets Friday as well. The spike & reversal in crude oil does feel like there was a top put in there, but I wouldn’t be surprised if $100 bbl is revisited.
Not to worried about the jobs issue. See wolfs myriad of articles about it.
The private equity could be a contagion
A silver lining in all of this is to cross examine which media outlets reported everything accurately going in, and coming out of this fiasco, to determine which ones deserve credibility.
So the conflict is over, Iran has surrendered in defeat, the straits of Hormuz are now open for oil tankers to freely pass, and all is well with middle eastern world. Great, let’s load up again on risk assets.
But if this isn’t the case, then it’s clearly wishful thinking that everything is soon going to return to normal.
Hubris got the USA into this situation. It’s unclear what gets the world out of it. Declaring mission accomplished is probably not going to be enough.
Seems short-term the US has the World by its —–. Long-term, not so certain at all. This whole thing was to squeeze Europe, China and those that compete with us. Sad.
It could be that the economy has always been a zero-sum game.
There are absolute limits on the size of the addressable market, population demographics, the number of productive people, and, of course, natural resources.
The world has never been a kumbyya place.
I don’t know about imbeciles… more like maniacs. Commodities futures trading is the Wild West. Back in the day, when everything was traded on a floor, it really was professionals running each other over. Now with cheap retail products available electronically, there are definitely people in the futures market who don’t understand how crazy things can be.
My first job out of school was in futures brokerage, and there were retail financial advisors who had their customers doing things like selling NatGas naked calls a week before expiration. They thought they were pretty clever, but it really was like standing on the tracks picking up pennies in front of a freight train. After one late spring cold snap spiked the market, they stopped calling.
The most brutal market move I ever saw though was when Hurricane Katrina flooded some coffee/sugar/cocoa warehouses in New Orleans. Those are tiny markets with no liquidity, so good luck getting out of a short position when the market gaps up 10% and everyone is highly leveraged. But, luckily, I’m too old to trade futures now.
I have been trading commodity futures for 40 years. The real use of futures was to hedge a farmers production. He sold it forward for a profit now, and did an exchange for actuals and collected payment for his crop at the elevator when the futures contract came due. The user took delivery of the product, paid the elevator. The idea was to let both sides plan there usage and profit in advance. They could set there prices in advance this way and not have to deal with last minute price fluctuations.
Then speculators got into the futures markets.
Running a business is just so much fun when you have no clue what your costs will be tomorrow.
If ever you want to bankrupt your business Donald Trump is an expert.
Yes the US is in pretty good shape regarding oil supplies, but Trump and his administration are likely as concerned about the oil and NG shortage on “allies” such as Great Britain, EU, India, Japan, etc.
Notice how they lifted “sanctions” on Russia oil to India? What a joke.
At this point time, the markets will take any statement and run with it. All Trump had to say is the war will be over soon, and the market was calmed. Regardless of the truthfulness of his remarks, this indicates the market mania is embedded at this point and hints at underlying problems. Who knows what it will take to break the camel’s back?
Historically volatility is controlled by raising margin requirements.
I wonder what is the cost to repair the damage from a drone’s 100 lb warhead hitting a tanker.
If the gulf states lower their prices enough, it might make financial sense for tankers to run the gauntlet.
“SELL MORTIMER..SELLLLLLLLLLLL!”