Oil traders are narrowing their focus to short-term derivatives, shunning long-dated contracts as the wars in Iran and Ukraine create persistent market volatility and liquidity gaps.
Oil traders are increasingly avoiding long-term derivatives due to the unpredictable geopolitical landscape surrounding the conflicts in Iran and Ukraine. According to Morgan Stanley's Brendan Ross, this shift toward short-term, three-to-six-month trading horizons has created a liquidity vacuum in longer-dated contracts, as market participants prioritize precision over broad exposure to avoid unexpected losses.
Traders are shunning long-term positions to avoid 'unexpected bleeds' caused by the high geopolitical uncertainty surrounding the wars in Iran and Ukraine.
Liquidity is concentrating in the front three to six months of the market, while longer-dated contracts are suffering from significant illiquidity.
Oil market participants are increasingly abandoning long-dated derivatives as geopolitical instability in Iran and Ukraine drives extreme price swings. Morgan Stanley's Brendan Ross notes that traders are prioritizing liquidity in the front three to six months, leaving longer-term contracts vulnerable to significant illiquidity and potential downside pressure.
Traders are shunning longer-dated contracts due to extreme geopolitical uncertainty and the resulting illiquidity, preferring to manage risk within a three-to-six-month horizon.