Crazy 24 Hours! Oil Prices Perform a "Historic Reversal"

“I believe this war is already very thorough, almost over.”

Trump’s statement, an expectation, crushed the runaway oil prices that were heading toward $120 per barrel back down to $85.

This was undoubtedly the craziest 24 hours in the oil market.

90! 100! 110! Soon 120… On March 9, the oil market was still soaring amid headlines of escalating US-Israel-Iran conflict, the Strait of Hormuz stagnation, and a wave of Middle Eastern production cuts, with WTI crude futures soaring about 31%, approaching $120 per barrel. The skyrocketing oil prices caused a “bloodbath” across global stocks and bonds. Stocks plunged, US bond yields surged.

But this script was completely torn apart within just 24 hours.

By the close on Monday, US crude futures had only risen 4.3%, to $94.77 per barrel.

Later in after-hours trading, prices further fell to around $85 per barrel.

This means—oil prices retraced over $35 of their gains within 24 hours.

“During my 30-year career, I’ve never seen such a market,” said an energy fund manager bluntly.

And three major pieces of news triggered the market’s reversal.

Three signals triggered the turn

First, undoubtedly, is Trump’s TACO.

According to Xinhua News Agency, on the afternoon of March 9, U.S. President Trump hinted in an interview with American media that the US-Iran conflict might end very soon.

He believes the conflict with Iran has been “very thorough,” and says Iran now “has no navy, no communication facilities, no air force, missiles are almost gone, drones have been destroyed, including their drone manufacturing plants,” “From a military perspective, they have nothing left.”

Trump emphasized that the progress of the conflict “far exceeded” the initial 4 to 5 weeks estimate, and dropped a heavy bombshell: the US is temporarily lifting some sanctions related to oil—“until the Strait of Hormuz returns to normal.”

Regarding Iran’s new Supreme Leader, Mullah Ali Khamenei, Trump said “there’s nothing to say to him,” and claimed he already has a “suitable person” in mind to lead Iran.

Second, the G7 (Group of Seven) announced considering releasing strategic oil reserves, reversing market expectations.

G7 leaders held an emergency meeting on Monday and publicly stated: “Ready to take all necessary measures, including releasing strategic petroleum reserves (SPR), to stabilize the market.”

Another signal comes from the Strait of Hormuz. There are signs of a recovery in shipping through this critical strait.

Market rumors suggest some oil tankers have already passed through the Strait of Hormuz, slightly easing fears of complete supply disruption.

Xinhua News Agency reported that Trump also said in the interview that ships are currently passing through the Strait of Hormuz, but he is still considering “controlling” this vital route.

These signals directly dampened the enthusiasm of crude oil bulls. Funds quickly reversed course, with the Nasdaq surging 1.4% from deep losses, and the Dow turning around in a stunning rally of over 1,000 points. US small caps also reversed from a decline of over 4% to a gain of more than 1%.

Almost all assets in the market experienced a turnaround.

US Treasury yields initially rose by 8 basis points overnight, then sharply declined, with US bonds closing higher across the board.

Trump’s remarks reversed the overnight surge, and the dollar turned lower.

Gold and Bitcoin began to rebound…

Anxiety, anxiety, anxiety

Why is the US suddenly eager to “cool down” the war? The US’s anxiety is now obvious.

First, concerns about oil prices.

Because oil prices are showing the first clear divergence between the US and Israel since the conflict began. According to CCTV News, Israel’s Air Force recently attacked about 30 Iranian fuel storage facilities. The US government is extremely dissatisfied, with officials bluntly saying this “is not a good idea.”

The US logic is clear: destroying civilian energy infrastructure not only fosters social unity in Iran but also directly pushes up global oil prices, which would backfire on US inflation data. The risk of stagflation caused by high oil prices is something the White House cannot tolerate right now.

Trump’s statement is like pouring a bucket of ice water on the frenzied oil bulls.

Second, the urgent political countdown.

Michael Hartnett, chief investment strategist at Bank of America, pointed out sharply in a March 9 report: the reality of midterm elections will force Trump to de-escalate the conflict in March.

The data is cold. Hartnett notes that since the conflict erupted, US oil has surged 45%, gasoline prices up 15%. Inflationary pressures are being transmitted directly to ordinary voters, pushing Trump’s economic approval down to 40%, and inflation support to 36%, at historic lows.

“Prolonged conflict is politically unsustainable,” Hartnett believes. To turn the tide before midterms, he offers clear trading guidance: “Sell oil at around $90 per barrel, sell the dollar when the DXY index is above 100, and buy 30-year US Treasuries at a 5% yield.”

Third, the physical limits of missile stockpiles.

Intercepting missiles needed to defend against Iran’s counterattacks typically require “two or three interceptors per target,” according to insiders. The stockpiles of US and allied interceptors like THAAD, Patriot, and SM-3 may “be exhausted within days.” The US military and allies are “consuming the systems faster than they can replenish.”

On March 4, Trump, anxious, even planned to summon defense contractors to the White House to discuss accelerating weapons production.

The market keenly perceives the US’s extreme fear of oil price backlash. Trump’s latest comments are essentially a strong warning to oil bulls— the White House is managing expectations to forcibly pull runaway oil prices back to safety.

Retail investors trapped: treating crude oil as a meme?

The sudden market reversal quickly ignited a “chain reaction” of internal “landmines” in the financial markets.

The fact that oil prices can swing $35 in a single day depends on an extremely fragile microstructure.

First, extreme short squeeze positioning. Goldman Sachs data shows that hedge funds’ short exposure in US macro products (indices and ETFs) has surged to the highest since September 2022, in the 93rd percentile over the past five years.

When Trump signaled that “the war is about to end,” a massive short squeeze forced short sellers to buy back, creating a brutal “short covering” stampede that pushed stock indices higher.

Second, the “amplifier” effect of options markets. Bloomberg macro strategist Simon White pointed out that market makers are currently caught in a “negative gamma” trap.

Under negative gamma, when prices fall, market makers are forced to sell to hedge risks; when prices surge, they are forced to buy to chase gains. This passive “buy high, sell low” behavior causes extreme volatility in both directions.

In this brutal squeeze by professional institutions, retail traders caught in the trap are suffering. Bloomberg ETF expert Eric Balchunas noted that USO, the US oil ETF, broke its single-day trading volume record, with retail and high-frequency traders fiercely competing.

Faced with retail investors’ massive buying of oil ETFs, a trader at the Manhattan trading floor couldn’t help but comment: “Do these idiots think it’s all over? … Are they treating oil like a meme stock?”

Cold reality: the crisis is not over

While financial markets are betting on “the war ending” and G7’s storage release celebrations, the physical bottlenecks supporting the previous surge in oil prices remain unresolved.

The real-world oil supply chain is still in a state of substantial “shock.”

Goldman Sachs’ report reveals the cold facts:

1. We estimate that transportation through the Strait of Hormuz has decreased by 90% from normal levels, reducing global daily supply by 18 million barrels (about 18% of global oil);

2. Currently, only 25% of the oil that could be transported via pipelines in the Middle East is actually moving—partly due to actual disruptions;

3. There are no quick shipping solutions; most shipping companies remain in “wait-and-see” mode;

4. Compared to historical experience focusing solely on Persian Gulf exports and simple models, oil prices may need to reach levels that severely damage demand even faster.

And the blockade of shipping has triggered a deadly chain reaction—“storage congestion.”

With tankers unable to enter or leave, oil storage tanks along the Persian Gulf are rapidly filling up. Middle Eastern oil producers have recently been forced to start cutting production.

Kuwait declared force majeure, with cuts expected to increase from 100,000 barrels per day to nearly 300,000 barrels. Since the country’s only export route is through the Strait of Hormuz, its storage capacity will be exhausted within days. Abu Dhabi National Oil Company (Adnoc) also announced adjustments to offshore production to cope with storage needs.

Saudi Arabia has tried rerouting exports to the Red Sea port of Yanbu, setting a record for supertankers loading there. But Goldman Sachs estimates that the net rerouting over the past four days is only about 900,000 barrels per day—far short of the 18 million barrels daily gap.

As for the G7’s verbal promise to release SPR, it cannot solve the logistical nightmare of oil not being able to get onto ships or out of the region.

Rob Thummel, portfolio manager at energy investment firm Tortoise Capital, pointed out the market’s blind spot: “There is actually plenty of oil in the world. We just need to get it flowing.”

Magda Chambriard, CEO of Petrobras, bluntly said:

“Shutdowns are quick, but recovery is not.”

In this frantic 24 hours, the financial markets are trading the White House and G7’s “expectation management,” but the industry remains trapped in the harsh reality of “physical supply disruptions.”

As long as the Strait of Hormuz remains blocked, the alarms at Middle Eastern storage tanks will not be silenced.

Risk warning and disclaimer

Market risks are inherent; invest cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.