Oil price volatility is at its highest since COVID, and market pros warn the swings aren't over

Oil prices are at their most volatile in more than half a decade as investors try to digest mixed signals from President Donald Trump about the Iran war, and further swings are likely, market pros say.

“The market is in highly speculative mode thanks to the absence of any certainty about what the next few days, let alone weeks, will look like,” Russ Mould, investment director at AJ Bell, said in an email on Tuesday morning.

International benchmark Brent crude and US West Texas Intermediate futures tumbled as much as 11% late Monday before trimming losses.

By around 7 a.m. ET on Tuesday, Brent was down just over 7% at around $91.77 a barrel, while WTI fell 6.3% to roughly $89 per barrel.

The sharp reversal came after a dramatic surge on Sunday night, when oil futures spiked to nearly $120 a barrel amid escalating fears of supply disruptions at the Strait of Hormuz — a critical chokepoint for global crude shipments.

“The market is now aware of President Trump’s pain threshold on oil prices,” wrote commodities strategists at ING in a Tuesday note.

Prices swung wildly on Monday before settling below $100 a barrel into Tuesday morning, as traders reacted to a stream of headlines out of Washington.

In an interview with CBS News, Trump said the war is “very complete, pretty much.” However, he appeared to strike a different tone in remarks to House Republicans in Miami and during a press conference later that day, adding to market uncertainty.

Uncertainty over the direction of the war, and therefore the price of oil, has seen volatility surge.

The CBOE Crude Oil Volatility index, which tracks swings in oil prices, passed above 100 over the weekend, reaching its highest level since the beginning of the COVID pandemic. Oil volatility has jumped more than 230% since January.

“The levels of volatility in energy markets have been extreme even by their own turbulent standards,” AJ Bell’s Mould wrote.

“The pressure valve has clearly been released for now. However, volatility across energy markets remains exceptionally elevated,” wrote Chris Weston, the head of research at Pepperstone.

Investors can expect significant intraday volatility to continue, including “moves that may not always make immediate sense,” Weston added in his note.

“The geopolitical backdrop remains fluid, and traders should expect volatility to remain a defining feature of the trading environment in the days ahead,” he wrote.

Away from oil, US stock futures edged higher as investors weighed the mixed signals. Here’s the picture just before 7 a.m. ET:

S&P 500 futures: 6,808, up 0.2%

Dow futures: 47,839, up 0.2%

Nasdaq futures: 25,045, up 0.3%

“Markets are beginning to trade the end of the conflict before it has actually happened,” said Nigel Green, the CEO of deVere Group, a financial advisory firm.

“Markets interpret political messaging almost instantly, often adjusting prices well before the underlying situation has materially changed,” he added.

Still, the outlook remains highly uncertain. Green said much will depend on the influence and decision-making approach of Iran’s new Supreme Leader, Mojtaba Khamenei — another layer of unpredictability to the geopolitical backdrop.

ING’s strategists echo the view that Trump’s words can only go so far.

“Ultimately, the market will need to see a resumption of oil flows through the Strait of Hormuz to sustain a move lower in oil prices. Failing that, we are unlikely to have seen the highs yet,” they wrote.

Asian and European markets rebound, with volatility likely to continue

Asian and European markets rebounded after steep losses on Monday, with investors focusing on signs that tensions may ease.

In morning trading on Tuesday, Germany’s DAX benchmark climbed 2.5%, while the UK’s FTSE 100 was 1.7% higher. The Europe-wide Stoxx 600 gained 2.1%.

Asian gains were even more significant, reflecting the bigger losses seen on Monday. Japan’s Nikkei 225 ended the day 3% higher, while South Korea’s Kospi jumped 5.4%.

Hong Kong’s Hang Seng Index rose about 2.2%, and Taiwan’s Taiex rose 2%.