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By: Gustian Farrow, Head of StoneX TV • Content Channels
Marco Saggese, StoneX VP of Clearing and Execution Sales, shares insights on recent oil market surprises and risk management in volatile times.
The recent conflict between Israel and Iran led to sharp movements in energy markets. Saggese explains, “the bombing occurred during the weekend. After the markets closed. We saw an initial reaction of the market going extremely high, but coming back down again, the main focus has been on what's going to happen next as opposed to what has actually happened.” He notes that clients are focused on potential escalation and the possibility of disrupted oil flows.
Amid heightened uncertainty, OPEC responded by increasing production. “They have actually increased their supply as a result of the conflict between Israel and Iran. And the net effect of that is to try and create some sort of stability in the oil price, movement,” Saggese notes. Despite the conflict, predictions of lower Chinese oil demand suggest a more bearish outlook if not for ongoing tensions.
Market volatility has surged, making risk management a key concern. “The volatility on the options where there's currently bread options are sitting around 70, 75% volatility where the norm would be between 25 and 35%,” Saggese says. The advice is to hedge to the maximum level in uncertain conditions and avoid removing short positions prematurely: “It could come back and bite you that one very quickly.”
While headlines dominate, Saggese urges clients to focus on fundamentals. “We are seeing a reduction in Chinese demand at the moment, which again, would have a more bearish effect. So I would be personally looking at those more fundamental key factors rather than geopolitical factors beyond this conflict.”
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---- Written by Gus Farrow
---- Expert: Marco Saggese, StoneX VP of Clearing and Execution Sales
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