When Iran began firing missiles at a US Air Force base in Qatar on Monday, oil traders responded at a notable speed by selling rather than shopping.
Within seven minutes of the first launch in London at about 5:30pm, international benchmark Brent Crude began to slide. It only took 20 minutes for the loss to accelerate to 3%. By 7:30pm, the price fell 7.2% to $71.48, the sharpest day drop in nearly three years.
The speed of sales in markets, which usually surges with signs of geopolitical conflict, has caused many surprises. Even if civilians covered and television channels broadcast missile images in the night sky, traders had already correctly concluded that attacks would not increase, but would reduce tensions between the US, Israel and Iran.
“It’s all organized and I know the base is open. I knew the base is empty since June 18th,” Jorge Montepeque, an oil analyst with Onyx Capital Group, said in a text message shortly after the attack began on Monday. “I’ve seen this movie before.”
Since hostilities began between Israel and Iran, traders said they had been glued to social media and open source intelligence to interpret development. “Everyone is on similar boats. We all track our Twitter feeds, our OSINT accounts and everything we can to understand that,” said the executives of leading oil traders.
For example, oil traders are listed on satellite images at Aludede Air Force Base in Qatar, which hosts 10,000 US troops. They appeared to have shown Tehran’s response to Monday’s attack by removing the plane from Al-Udeid’s days before the US attacked Iran’s nuclear facility last weekend.
Satellite photos show that the plane appears to have been removed from Aludeded Air Force Base in Qatar between June 5th and June 19th ©Planet Labs/AFP/Getty Images
That intelligence helped traders draw two conclusions. The missile launch is largely symbolic, and while the Islamic Republic has demonstrated its response to the US strike on nuclear facilities, it is unlikely to escalate further by targeting the region’s most vulnerable assets, the petroleum infrastructure.
According to energy consultant Tristad, oil and gas continued to flow undisturbed from the region during the battle, and Iran increased its exports.
This reflects another characteristic of the oil market. Traders are good at flowing through the barrels in the chaos that lead other industries to flight.
Market reaction on Monday reflected its actions a week ago, but before profits evaporated when signs that Tehran was seeking peace talks after crude prices rose 5.5% after Israeli air attacks at Israeli gas plants and fuel depots.
Both episodes show how traders focused on one top priority since the battle began. Is Iran likely to threaten oil tankers traveling through the Strait of Hormuz, a 33km wide chokepoint connecting Gulf producers with the global market?
“Everyone was focused on getting shot in the straits. As soon as it became clear that this wouldn’t happen, there was a risk premium.”
The oil trade executive said the pattern has been established in recent years. “This is not the same situation as Ukraine or Russia. Here we have to reorient trade flows over a long period of time. This is a situation in which the market is about to sell spikes.”
Montepeque reflected that view and stated that selling important developments is now a standard practice. “After reading the market correctly, you’re making money based on your favor, and you want to crystallize profits and sells.”
The market had anticipated the start of a war, but oil had risen ahead of Israel’s first attack, but the broader background made traders reluctant to bet largely on price increases. The global oil market is well-supplied, with the OPEC+ oil cartel growing significantly over the past few months. Additionally, US shale drillers keep American output at record highs.
RBC strategist Helima Croft said the White House had decided to oppose tapping US strategic oil reserves, perhaps even at the height of energy market conflicts in recent weeks.
Many analysts predict that the world will be full of crude oil by the end of the year, putting more pressure on prices. “Everyone thinks this (oil) is down to $50 or $60,” the senator said.
The interim ceasefire between Iran and Israel was mediated by President Donald Trump, causing another sale on Tuesday.
“The general sentiment is that Iran can’t do any more and closing the straits will only hurt China. “There’s nothing more that the Israelis can do. The nuclear threat has subsided, and further attacks from them are not that well received.”
Analysts said the market price fluctuations were highlighted by positioning the options.
Due to concerns over high supply and lukewarm water, some producers have purchased the “pat” option as oil markets are under pressure before the collapse of the conflict between Iran and Israel.
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Dealers are the leading vehicles used in oil trading and manage these positions by purchasing futures that set the basis for global oil prices.
“When Brent fell, the probability that dealers had to pay increased, so they had to sell more and more futures,” said Ilia Bouchouv, former president of US merchandise trader Koch Global Partners. The extra sales promoted a sharp move on Monday, he said.
Marex broker Al Munroe added, “I was rushing like crazy to the top, I was rushing like crazy.”
