Huatai Futures: The oil market has entered a noise trading phase

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Source: Huatai Futures 　Author: Kang Yuanning

Market News and Important Data

1、WTI May crude oil futures closed down $1.26, a decline of more than 1.24%, to $100.12 per barrel. Brent June crude oil futures closed down $2.81, a decline of more than 2.70%, to $101.16 per barrel.

2、The Russian Ministry of Foreign Affairs said on Wednesday that it expects the OPEC+ Joint Ministerial Monitoring Committee (JMMC) to discuss the issue of recent oil price increases at the April 5 meeting. The OPEC+ JMMC is scheduled to hold an online meeting on Sunday. OPEC and its allies previously agreed to maintain production stability in the first quarter of 2026 and plan to resume increased output in April. The eight member countries that have already increased production will also hold a meeting on April 5. Russian Ministry of Foreign Affairs spokesperson Zakharova said: “Ongoing conflicts have led to a significant decline in oil supplies and rising energy prices. We expect this to become the core agenda item for the 65th meeting of the OPEC+ Joint Ministerial Monitoring Committee.” (Source: Bloomberg)

3、EIA report: In the week of 03/27, U.S. crude oil exports increased by 199,000 barrels per day to 3.521 million barrels per day. U.S. domestic crude oil production remained unchanged at 13.657 million barrels per day. Excluding strategic reserves, commercial crude oil inventories increased by 5.451 million barrels to 462 million barrels, an increase of 1.19%. The four-week average supply of U.S. petroleum products was 20.941 million barrels per day, up 4.22% from the same period last year. U.S. Strategic Petroleum Reserve (SPR) stocks decreased by 378,000 barrels to 415.1 million barrels, a decline of 0.09%. U.S. crude oil imports excluding strategic reserves averaged 6.454 million barrels per day, down 10,000 barrels per day from the previous week. (Source: Bloomberg)

4、A group of crude oil traders are aggressively taking short positions, betting that oil prices will retreat from their war-driven highs, but most traders are currently suffering severe losses. Data shows that in March, ETF investors poured $977 million into ProShares UltraShort Bloomberg Crude Oil ETF (SCO), setting the largest single-month net inflow for the fund since it was launched in 2008. SCO provides twice the inverse return of the daily crude oil price moves. Despite record inflows, SCO’s total assets are still only $970 million, which is less than the total amount of net inflows for the whole month. Rocky Fishman, founder of Asym 500, said: “This is a bet that ‘the war will end soon.’” On Tuesday, after President Trump once again hinted that the Iran war might end, the fund rose 8%, but it was still down 41% in March, marking the worst performance in nearly six years. However, the short bets are only half of the market picture; long funds also set records. The US Oil Fund (USO) attracted about $700 million in March, the largest monthly inflow since the pandemic, and the U.S. Brent crude oil fund (BNO) pulled in $600 million, reaching a record high. The market is highly polarized, with leveraged funds hedging on both sides. (Source: Bloomberg)

Investment Logic

In recent days, oil prices have begun to retreat from high levels. The market has started trading based on Trump’s remarks about ending the U.S.-Iran conflict. We believe that if the U.S. withdraws while Iran controls the Strait of Hormuz, it would mean a substantial defeat in the war—an outcome that is also unacceptable to the U.S., its Middle East and European allies. The U.S.’s own problem of high inflation cannot be resolved either, and the acceleration of the decline of U.S. hegemony continues. Trump’s statements do not necessarily represent the direction of developments, but because oil prices are deeply intertwined with war outcomes, the current stage has already entered a clear noise-trading phase. At this stage, whether taking a one-way long position or a one-way short position, the risk-reward ratio will face significant uncertainty, so risks arising from potential event reversals must be guarded against.

Strategy

In the short term, geopolitical developments continue to keep volatility in oil prices relatively high. With risk in the crude oil market currently elevated, it is recommended to use options tools to hedge risks.

Risks

Downside risk: The easing of the Middle East war, the resumption of navigation through the strait, and an energy crisis triggering a global economic crisis

Upside risk: The suspension of navigation through the Strait of Hormuz lasting longer than expected

Qualification for investment consulting business: CSRC License No. [2011] 1289

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