Global oil markets have experienced a rapid erosion of liquidity this year as investors pull back amid intense price volatility and shifting political signals, market participants say.
Liquidity - a measure of how well the number of buyers matches the number of sellers - depends on traded volume and open interest. Open interest, defined as the number of Brent crude futures contracts held by investors, has dropped by nearly 17% so far this year, the fastest decline since at least 2009, according to LSEG data.
Traders and market sources point to erratic messaging from the U.S. administration over the Iran conflict as a major driver of investor caution. Observers describe a pattern in which escalatory threats are issued and then reversed hours later, leaving market participants exposed to abrupt changes in risk perception.
"People are exhausted by this chaos. They want this to be over. You cannot trade futures without being constantly burned in an environment when the messaging changes every other hour," said a senior executive at a major trading desk, who asked not to be named because of the sensitivity of the subject.
Those dynamics were reflected in price action last week when oil fell almost 3% to its lowest level in nearly two months after Washington called off threatened new strikes on Iran, with the U.S. president saying a deal to end the war was close. That move showed how rapidly markets can swing on political developments.
The front-month August Brent futures contract recorded the lowest open interest since last July as it assumed the status of the most actively traded contract earlier this month, with 534,227 lots outstanding. Open interest typically peaks at the start of a contract month and then declines toward expiry, at which point trading activity shifts to the next contract in the chain.
When liquidity thins, counterparties become scarcer and buyers or sellers frequently must accept materially higher or lower prices than they otherwise would, amplifying volatility. While larger price swings can increase potential rewards for those taking positions, they also heighten the risk of losses for market participants who find themselves on the wrong side of rapid moves.
Commenting on the broader market response, former Goldman Sachs commodities chief Jeffrey Currie said that the lack of a sustained rebound above $100 a barrel recently was not evidence of ample supply despite significant physical constraints. The Strait of Hormuz has been severely constricted, yet prices have not stayed materially above the $100 level, Currie argued, attributing the failure to a phenomenon he described as "capital aversion."
"Policy uncertainty has made oil too volatile to hold," Currie wrote in a post on X on June 10. "2026 year-to-date open interest decline is the worst on record. Unlike 2022, there’s no rates shock or sanctions forcing the exit. This is capital aversion," Currie, who is a senior adviser to alternative asset manager Carlyle, said.
Market participants say the confluence of constrained physical supply dynamics and reluctance among investors to hold futures positions has created a market environment where liquidity is more fragile. That fragility can translate into larger short-term price moves and may complicate hedging and procurement decisions for businesses that rely on predictable oil price exposures.
Context and implications
- Open interest in Brent futures has declined nearly 17% year-to-date - the steepest fall recorded since at least 2009, per LSEG data.
- Front-month August Brent registered 534,227 lots and the lowest open interest since last July when it became the most-active contract earlier in the month.
- Erratic political messaging tied to the Iran conflict has been cited by traders as a key factor reducing investors' willingness to hold futures positions.