Morgan Stanley says oil traders shun long bets as wars cloud outlook

Oil traders are retreating from longer-dated positions as the conflicts in Iran and Ukraine make it nearly impossible to forecast markets beyond the next few months, according to Morgan Stanley's ↘ 0.89% co-head of global oil trading.

Brendan Ross told the Asia Pacific Oil Conference in Singapore on Wednesday that traders are concentrating derivatives positions within shorter time horizons and becoming more "clinical" about the risks they are willing to carry.bloomberg+1

"People are managing risk with greater precision," Ross said. "They have clearly identified which risks they truly wish to assume and which could lead to unexpected, sustained losses."FuTu News

Near-Term Focus, Long-Dated Drought

Ross said traders are now primarily dealing in contracts covering the next three to six months, while illiquidity in longer-dated contracts is compounding the overall dryness in the market. Participants are reviewing their portfolios and shedding exposures they do not genuinely want, he added, a process that is draining liquidity particularly from deferred months.bloomberg+1

The shift comes as Brent crude broke back above $100 per barrel this week for the first time since July, driven by threats to both the Strait of Hormuz and the Bab el-Mandeb Strait. The U.S. said it had destroyed five Iranian oil tankers, prompting Tehran to announce retaliatory measures, while Houthi forces launched attacks on Saudi energy facilities that reignited concerns over Red Sea export security.FuTu News+1

Since the start of the year, Brent prices have swung between roughly $60 and $126 per barrel, with refined product prices experiencing even sharper moves. Ross noted that the disconnect between physical and financial markets is most acute in refined products, where disruptions to production and trade have tightened global supplies.FuTu News

A Market Reshaped by Geopolitics

The rapidly shifting situation between Washington and Tehran, combined with ongoing Russian-Ukrainian hostilities and repeated Ukrainian strikes on Russian energy infrastructure, has made long-range forecasting an exercise in guesswork. Analysts at BMI, a unit of Fitch Solutions, still expect a preliminary agreement to reopen the Strait of Hormuz by the end of the third quarter, though recent military escalations have tested that assumption.Energy Connects+2

Shipping data underscores the severity of the disruption. Preliminary figures from Kpler showed only six cargo vessels passed through the Strait of Hormuz on September 8, below the recent 10-day average of 12.FuTu News

Wider Market Implications

The concentration of trading activity in near-term contracts weakens price discovery in deferred months, widening bid-ask spreads and making even small orders capable of triggering outsized moves. For refiners and fuel consumers, hedging with crude oil futures alone increasingly fails to cover the risks arising from refined product shortages and surging freight costs.FuTu News

Bank of America ↘ 0.36% has forecast Brent could trade between $95 and $120 per barrel if limited disruptions persist through year-end, with a risk of prices reaching $150 should major energy infrastructure sustain damage. Morgan Stanley's own commodities team has remained constructive on prices given ongoing supply uncertainty.morganstanley+1

"People are essentially trading only near-term contracts," Ross said, "while illiquidity in longer-dated contracts further exacerbates the overall lack of liquidity."FuTu News