Reza Dilmaghani, who primarily trades stocks, has been in and out of the oil market over the past week, driven by the biggest weekly rise in oil prices in nearly two years.
“Since it hit $67, it’s been a very steady and orderly rise,” said Dilmaghani, a Phoenix-based day trader looking to take advantage of the market’s short-term direction. “If there’s order, that’s great.”
He is not the only so-called oil “tourist” to flock to the market as futures prices soar due to war risks. Retail investors are rushing into oil-related products as oil prices have soared by more than $6 a barrel in the past week due to Iran’s attack on Israel.
Read: Oil war premium rises again after Iran attack on Israel
Trading volumes at the U.S. Petroleum Fund, the largest publicly traded product that tracks oil prices, soared this week to their highest level since Russia invaded Ukraine in 2022.
Similarly, CME Group’s micro WTI futures, which are traded on retail investment sites, also posted their highest daily volume since January this week. The company’s weekly options, which traders use to hedge short-term risks in prices, saw open interest surge to a record of about 80,000 contracts this week.
While this would bring much-needed liquidity to a futures market that is no longer open to private companies, it also threatens to create more volatility.
In recent years, opportunistic traders who move quickly in and out of the market during major global events have had a significant impact on oil prices. In 2020, U.S. oil prices briefly turned negative as retail investors entered the market on a large scale as prices plummeted due to demand concerns.
John Love, CEO of USCF Investments, which manages USO, said this week’s spike in USO trading volume was “consistent with higher than normal volatility in crude oil.”
One measure of volatility rose this week to its highest level in two years.
This creates risk for more traditional traders. Retail investors have flooded the market amid rising geopolitical tensions, pushing prices higher than fundamentals warrant. Scott Shelton, an energy expert at TC ICAP, said the market could collapse if the Middle East conflict does not actually impact oil supplies.
Read: Middle East war risks focus on Iran’s quiet oil resurgence
Dilmaghani isn’t worried about that. The reason is simple. “Because I won’t have anything overnight.”
