Reza Dilmaghani trades mostly in stocks, but he has repeatedly entered the oil market over the past week, lured by crude’s biggest weekly rally in nearly two years.
“It’s been going up pretty steadily and orderly since we hit $67,” said Dilmaghani, a Phoenix-based day trader who is trying to capitalize on the market’s short-term direction. “If it’s neat, it’s great.”
He’s not the only so-called oil “tourist” flocking to the market as the risk of war drives up futures. As Iran’s attack on Israel sent oil prices soaring by more than $6 a barrel last week, retail investors are investing in oil-related products.
Read: After the Iranian attack on Israel, the war premium for oil is rising again
Volumes in the United States Oil Fund – the largest exchange-traded product tracking oil prices – rose this week to their highest level since Russia’s invasion of Ukraine in 2022.
Likewise, CME Group’s micro WTI futures – which are traded with retail investments Websites – recorded its largest daily volume this week since January. The company’s weekly options, which traders use to hedge short-term price risks, saw open interest jump to a record high of nearly 80,000 contracts this week.
While this brings much-needed liquidity to a futures market that has sidelined commercial players, it also threatens to increase volatility.
Opportunistic traders who move in and out of the market quickly during major world events have had a significant impact on oil prices in recent years. A massive decline occurred in 2020 when demand concerns caused prices to plummet incidence from private investors into the market contributed US oil briefly turned negative.
This week’s increase in USO volume “coincided with higher than average crude oil volatility,” said John Love, CEO of USCF Investments, which manages USO.
A measure of volatility rose to its highest level in two years this week.
This poses risks for more traditional traders. Retail investors pouring into the market as geopolitical tensions escalate are helping to drive prices higher than fundamentals warrant. If the conflict in the Middle East doesn’t actually impact crude oil supplies, the market could collapse, according to Scott Shelton, an energy specialist at TC ICAP.
Read: The risk of Middle East war puts Iran’s quiet oil comeback in the spotlight
That doesn’t worry Dilmaghani, for one simple reason: “I don’t hold anything overnight.”