Markets hate uncertainty.
Panic-stricken markets are losing faith in Donald Trump
The president’s contradictory statements on the Iran war have sent trading into chaos
In roughly 14 years of trading oil, including during the pandemic when crude prices briefly went negative, Greg Newman has never seen a market like this.
“It’s almost a broken market. People don’t know what to do,” the chief executive of Onyx Commodities says.
Onyx employs 60 traders across London, Dubai and Singapore who buy and sell oil contracts covering things such as crude oil and jet fuel. They trade with everyone from oil producers to trading houses and hedge funds, helping the market flow.
Knowing which way prices are going is a key part of the job: buy high and sell low and you’ll soon be out of business.
Yet working out where oil will go as war rages in the Middle East has proved unusually difficult.
Past crises also saw wild swings in the price of oil but the big physical trading houses, which have vast control over oil flows and the hedge funds that have become increasingly prominent players were still largely in control.
This time, it’s different. The reason? Donald Trump, the US president.
Oil has been sensitive to Trump’s comments about the US war in Iran. Yet his view of it seems to change hour by hour.
As oil futures began to trade in Asia on Sunday night, prices surged close to $120 a barrel as the US president said expensive fuel was a “small price to pay” for world peace.
Yet by Monday afternoon, Trump was saying the war in Iran was “very complete, pretty much”, sending crude prices plummeting to below $90. It was the biggest daily swing in dollar terms on record.
Hours later, Trump threatened to hit Iran “20 times harder” if they blocked oil flows, prompting another rise in prices.
The course of the war matters hugely to oil prices. Around a fifth of the world’s supply passes through the Strait of Hormuz, a narrow Gulf waterway shut by Iran since the conflict began.
The International Energy Agency has said the disruption is the biggest shock to supply in history.
Trump’s stream of often contradictory statements on the future of the war has left oil prices on a roller-coaster ride.
“This week, everyone in the industry feels like we’re in a washing machine on spin mode,” says Pierre Chapuis, the head of petroleum and green fuels trading at Axpo, Switzerland’s largest energy company. “You come home and put the TV on, and you watch live news. We’re constantly glued to our phones.”
He adds: “I was talking with some colleagues on the desk. We have the feeling that we’re binge-watching Netflix. You want to know what’s happening next.
“You know it is coming in imminently, and it will be unexpected. Eventually, you say it cannot be true, but it is. That’s a bit the way that we’re following the news [from the White House].”
‘Headlines remain unreliable’
The Trump administration has shown an extreme willingness to put downward pressure on the cost of oil, with rumours that the treasury department was even considering actively trading oil futures contracts in an effort to tame prices.
The president’s public statements on the war often appear to be part of that campaign, with Trump trying to talk down the price even as ships burn in the waters off Iran.
Yet the increasingly contradictory nature of his statements has left many questioning whether they can trust the messaging coming from the administration.
Prices whipsawed earlier in the week after Chris Wright, Trump’s energy secretary, posted on X that the US navy was escorting an oil tanker through the Strait of Hormuz, before promptly deleting the message.
The White House denied any escort shortly after and said the incident was an error. Yet, it didn’t stop Iran’s foreign minister from accusing the Trump administration of deliberate market manipulation.
“US officials are posting fake news to manipulate markets,” Seyed Abbas Araghchi posted on X. “It won’t protect them from inflationary tsunami they’ve imposed on Americans.”
Paul Gooden, the head of global natural resources at asset manager Ninety One, says a “PR battle” is raging over oil. While Trump insists prices will soon “drop very rapidly”, Iran is telling the world to brace for $200 a barrel.
“Headlines remain unreliable,” Tamas Varga, an analyst at PVM Oil Associates, part of the world’s largest energy and commodities broker, says. “Headlines remain very difficult to try to translate or interpret, but their impact ever since the Iranian crisis broke out is much larger than before.”
A trader at a London firm puts it more succinctly: “If you’re trading just on [headlines], you’re just gonna get f-----.”
Some of the world’s largest hedge funds and trading houses have found themselves caught offside. One hedge fund run by Caxton Associates reportedly lost at least $600m (£449m) in this month’s market upheaval.
Trafigura, one of the four largest commodity trading firms in the world, secured an extra $3bn banking facility to defend against any possible margin calls.
Hedge fund Citadel’s flagship Wellington fund lost 2pc last week, while Balyasny Asset Management dropped by 3.5pc. Two of its senior energy traders, Toby Sheppard and Max Iakovlev, left the firm last week, according to Bloomberg. A reason wasn’t given.
“They don’t know what’s going to happen, certainly minute to minute, but even day to day,” Newman says, referring to the hedge funds and trading houses. “So even they’re getting called out. Whereas clearly some people do know what’s going on. Political information and timely information is evidently everything.”
Some observers think they have the answer. Adam Kobeissi, a US analyst who runs an investment newsletter, claims to have identified Trump’s “conflict playbook”. It begins with intense pressure to strike a deal before rapid escalation and then de-escalation.
“One of the most overlooked elements of this strategy is the degree to which financial markets themselves become part of the negotiation environment,” the Kobeissi Letter, his X account, wrote earlier this month. “President Trump has consistently demonstrated awareness of equity market performance, energy prices, and inflation expectations as components of broader political optics.”
The US president’s sensitivity to markets led to speculation that “Taco” Trump could be returning earlier this week when he called a press conference in the wake of oil’s surge to $120. The “Taco” nickname – Trump always chickens out – came after he backed away from the worst of his trade war following a vicious market reaction.
Yet this time, Trump is trying to have his cake and eat it too. Asked at the Monday press conference whether the war was escalating or “very complete” as Trump had suggested, he replied: “You could say both.”
The result is confusion and significant volatility in oil.
‘Too much volatility is a killer’
Chapuis has traded oil for two decades. This week has been the most “intense” moment of his career.
“You’re so focused. We even forget about lunches and meetings,” he says.
The situation is far more complicated than previous periods of turmoil, such as the pandemic or Russia’s invasion of Ukraine.
“This time, it’s so complex,” Chapuis says. “You have the Middle East, Israel, the States, then you have Europe that might step into it. Then you have Hormuz, then you have some fields that are shutting down.”
He adds: “We never had an environment that was as concentrated in terms of so many different events all over and all at once as what we have at the moment.”
He and his team buy and sell future contracts rather than physical oil barrels, providing producers, refiners and retailers with an ability to hedge against the risk of price swings.
Normally, having some movement in prices helps traders make money. But too much, and it can turn existential.
“Too much volatility is a killer. [It] can destroy the market,” says Chapuis.
When prices swing by as much as 30pc, it can trigger margin calls where banks that have lent people money to trade with ask for more capital to back up the position. Traders unable to do so risk getting wiped out, creating yet more volatility.
“The market volatility that we see right now is very unhealthy, especially when you’re talking about headline-driven swings that are confusing every market player,” Chapuis says.
“You have some funds that are used to manoeuvre more steady environments. And then all of a sudden, a black swan like this one happens, and it is very difficult for them then to manage it.”
Rumours are circulating in the City about entire teams being sacked on the spot after incurring big losses.
Adding to the confusion is the fact that price setters are struggling to provide accurate benchmarks for some of the world’s major oil grades. S&P Global Energy, better known as Platts, was forced to revise its methodology for its key Dubai oil price earlier this month after energy shipments through the Strait of Hormuz were brought to a halt.
The uncertainty has led some traders to draw back from the market, leading prices to become increasingly untethered from reality.
“You just see people just trying to get the bare minimum done,” Newman at Onyx Commodities in London says. “It’s gotten to the point where it’s not healthy for this market.”
Chapuis believes there is no point trying to chase Trump’s statements, given how contradictory they can be.
Instead, he relies on a network of analysts monitoring the situation in the Middle East and Iran around the clock. Then Chapuis and his team make calls and try to stick to them.
“You need to be very, very strict and disciplined. You need to go into a trade with a clear plan and stops,” he says.
That’s easier said than done. One oil trader who has been in the market for more than a decade says every moment away from his screens has become “pure stress and anxiety”.
“You don’t have any confidence that [Trump] knows what he wants to do,” he says.
The last two Sundays have seen him trade at his desk at his home in Kent when the oil markets open at 11pm, getting only a few hours’ sleep between 2am and 6am before trading throughout each weekday.
“It’s hard to trade with any confidence and have any strong belief in your trade because it can just change on the flip of a dime,” the oil trader adds.
Every time things appear calmer, something else happens. Often, it’s a message on Truth Social from the president.
