History might confirm in a decade or two that the US has not had a more consequential president, at least not in peacetime, than Donald Trump. The start of his second term is still a few days away, but investors already scrutinize every word he whispers. Cliches are boring but true. Action speaks louder than words, but at this stage all markets can do is to rely on his press conferences and social media posts. It is a low or even zero-validity environment since it is virtually impossible to successfully predict outcomes, but the cognitive bias investors possess forces them to make educated guesses. We have no doubt that views about Trumponomics will swing more widely than a pendulum but the current signs are ominous. Not even policymakers of the incoming administration are certain whether the dreaded tariffs will be imposed on trading partners, however, there are clear signs that the anxiety level about sticky consumer prices is on the rise again. Some argue that the strong labour market will have an inflationary effect and so will a protectionist economic agenda of Trump 2.0. US equities have been on a downward slope in the last three days and bond yields are rallying. The Fed minutes from December showed concerns about the renewed risk of inflation.

No surprise then that the safe haven status of the dollar has appreciated. Its index is flirting with the 2-year high achieved on January 2. The strong dollar was undeniably one of the factors that helped the morning rally reverse in oil yesterday. The real incentive to shed length came in the form of disheartening weekly EIA stats, which saw crude oil stocks draw marginally and product inventories build considerably. Total commercial stockpiles grew by 5 million bbls. The most curious aspect of the report was the record volume of Canadian crude oil (4.42 mbpd) finding its way into the US ahead of the Trump presidency as importers took a rather pragmatic and safe view of the odds of potential US tariffs on its northern neighbour – or on the 51st state of the US, depending on one’s political stance. Static Chinese consumer prices and deflationary producer prices question the effectiveness of announced stimulus measures and do absolutely nothing to revive hopes of brighter prospects in the world’s second biggest economy.

Improving Liquidity

The oil market might have disappointed investors in 2024 as the returns of the individual contracts and the all-in-all performance were sub-par – at least compared to other asset classes. Major stock indices fared meaningfully better than the oil sector. Out of the five main oil futures contracts WTI was the most convincing with an annual return of 8.6%, including monthly roll-overs. Brent returned slightly more than 5%. RBOB and Gasoil were broadly flat, and you would have lost 6.5 cents on every dollar you invested in Heating Oil. These results compare with the MSCI All-Country Index rallying 15.7%, which pales in comparison with the 28.6% return of the tech-heavy Nasdaq Composite Index. The commodity sector, as a whole, also outperformed oil. The S&P GSC Total Return Index yielded 9.9% in 2024, and gold matched the performance of Nasdaq with a growth of 27.2%.

Oil unreservedly underperformed but it was actively traded; the average daily volumes (ADV) showed year-on-year increases, a welcome development for the two major oil futures exchanges, the CME and ICE. When taking into account every contract traded on both exchanges, ADV rose by a respectable 16%, from just over 3 million lots in 2023 to 3.483 million contracts last year. It is the highest annual ADV since 2020 when a record 3.522 million contracts changed hands in total.

The biggest winners were the two crude oil benchmarks, WTI and Brent but intriguingly not on their home turfs but in the territories of the competition. WTI ADV traded on ICE increased from 233,000 lots to 337,000 lots, a rise of 45%. Brent traded on the CME expanded by 64% as its ADV produced a year-on-year jump of 38,000 lots, from 60,000 contracts to 98,000 contracts. When comparing the two crude oil markers (traded on both exchanges) we see equal growth. Combined WTI ADV climbed from 1.145 million contracts in 2023 to 1.313 million contracts last year, an advance of 14.7%. ICE and CME Brent went from 1.12 million lots to 1.28 million lots, a 14.5% expansion.
As mentioned above, price-wise products performed considerably worse than crude oil, yet what we see is that the growth in the CME Heating Oil and RBOB ADVs at 15.4% and 11% exceeds that of CME WTI (+7%). The same phenomenon is observed on ICE. Although the Gasoil/Brent crack spread weakened as the price of Gasoil hardly changed over the year and Brent turned 5% higher, the product’s ADV growth of 25% outpaced the increase of 11.7% in Brent ADV.

This leads us to the final part of our review of last year’s trading volumes. Products gained ground at the expense of crude oil. WTI’s share to Heat and RBOB fell from 77% in 2020 to under 73% last year, the lowest since 2015. When the pandemic struck in 2020, liquidity dried up and the CME crude oil contract received a disproportionate boost compared to products in search of liquidity. The preferred choice of money managers was the contract with the greatest depth. On ICE, after Russia’s invasion of Ukraine, Brent’s share of the total volume rose to nearly 80%, whilst Gasoil was responsible for 20% of the combined ADV. The 2024 ratio was 76/24. The pre-invasion and pre-pandemic status quo are being re-established. As products are re-gaining their deserved share in futures trading crack spreads are once again becoming a truer reflection of the underlying fundamentals than they were in 2020 or 2022. Looking forward, volatility will likely persist in 2025 as the erratic policymaking of the new US administration will have market players glued to their screens throughout the year. Since unforeseen price movements and volatility are traditionally supportive of trading volumes 2025 might just be the year when combined CME and ICE ADV scales the summit of 3.522 million contracts reached in 2020.

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