Was the unusual and suspicious trading activity in oil and share futures earlier this week insider trading, or was it astute traders taking advantage, again, of Donald Trump’s predictability?
Last Saturday, Trump gave Iran an ultimatum, posting on Truth Social that the US would “hit and obliterate” Iranian power plants, “starting with the biggest one first,” if Tehran didn’t re-open the Strait of Hormuz. He gave Iran 48 hours to comply.
Just after 7am on Monday in the US, in another Truth Social post, he walked back that threat and extended the deadline by five days, saying there had been “in depth, detailed and constructive conversations” over the weekend with Tehran about “a complete and total resolution” of the conflict. Iran, subsequently, has denied there were talks and has rejected the administration’s plan for an end to the conflict.
Fifteen minutes before that post, about 6200 oil futures contracts, notionally worth about $US580 million ($835 million), were traded within a minute, according to a Financial Times analysis of Bloomberg data. Each contract represents 1000 barrels of oil, so a $US1 movement in the oil price generates a $US1000 profit or loss.
There was similarly unusual activity in S&P500 futures – where there were contracts notionally worth $US1.5 billion traded – in prediction markets, in individual oil stocks (there was a burst of activity in Exxon options, for instance) and, it seems, in some European markets.
Not surprisingly, the markets responded to Trump’s post, with oil prices tumbling and stock prices rising.
Brent crude dropped from about $US112 a barrel to $US99 a barrel. S&P 500 futures jumped 3.35 per cent and a cluster of newly-created accounts on Polymarket that were punting on a ceasefire were shown to be prescient.
Hundreds of millions of dollars, if not billions, were made for those investors in the less than 15 minutes between the trades and Trump’s post.
The huge spikes in futures markets volumes, and parallel activity in predictions/betting markets, immediately led to conclusions that it must be insider trading, adding to a pattern of equally suspicious trades ahead of Trump’s previous market-moving changes of mind.
Those include similar activity ahead of the US and Israeli strike on Iran, including prediction markets’ betting that Ayatollah Ali Khamenei would be killed.
There were huge purchases of call options just before Trump paused his “Liberation Day” tariffs for three months last year, only a week after he had announced them; successful bets on the capture of Venezuelan president Nicolas Maduro; sudden increases in market activity ahead of the government shutdowns and similar wagers being made before the informal release of the economic data that Trump often pre-emptively announces on Truth Social.
The suspect activity in markets on Monday looks exactly as it would if someone, or several someones, had access to prior knowledge – inside information – that Trump was about to reverse course on his threat to obliterate Iran’s power generation.
Had that threat been carried out, it would inevitably have triggered retaliatory attacks by Iran on the region’s energy and water infrastructure, with near-permanent effects on global oil supply, not to mention devastation for communities and economies dependent on desalinated water. The oil price would have soared and share and bond prices would have plummeted.
Knowing that the oil price would fall and share prices rise as the immediate threat of escalation receded, an astute investor would take up big short positions in Brent Crude and West Texas Intermediate futures, buy call options on the S&P 500 index, place bets in prediction markets and buy options over the big oil stocks.
To muddy the waters and maximise their profits, they might also seek out similar positions in markets outside the US.
That scenario is essentially what happened on Monday, but was it insider trading or just astute trading?
Trump is extremely predictable. He’s prone to making dire, bombastic threats and less than truthful statements – almost always on Truth Social – and then backing away just before he’s supposed to be about to act.
There have been a number of occasions when he’s announced something on a weekend to give markets time to consider their response – and for him to gauge their likely reaction.
Whether he would recognise it or not, his propensity for using statements on Truth Social to gauge investor sentiment and then react (via Truth Social), whether or not it facilitates insider trading, could be characterised as market manipulation – not that Trump, immune from prosecution while president and with the power of the pardon for any associate or family member, would care in either case.
He is very aware of, and sensitive to, the impact his decisions and pronouncements have on financial markets and tends to back off if share or bond investors react badly to whatever he proposes.
It was the violent adverse reaction in the markets that caused him to defer the Liberation Day tariffs.
A smart investor who has studied Trump’s modus operandi would be very aware of the likelihood that the severity of Trump’s threat – he was proposing to commit a war crime with potentially horrific repercussions for the region – would lead to another of his “TACO” moments. He usually does chicken out.
While the timing of the trades, just minutes before Trump performed his TACO backflip, does look highly suspect, it is conceivable, at least, that they were the result of an astute trader betting that Trump would what he always does.
It may be that we never know the real character of the trades in question.
The US Commodities Futures Trading Commission, which is the regulator for most futures activity and which has charge of oil futures, isn’t known for its regulatory zeal.
The Securities and Exchange Commission, which oversees the sharemarket and some futures trading in equity-related indices, is now chaired by a Trump appointee and is in deregulatory mode.
Trump is extremely predictable. He’s prone to making dire, bombastic threats and less than truthful statements – almost always on Truth Social – and then backing away just before he’s supposed to be about to act.
Neither body has expressed any interest in pursuing an investigation into the trading.
It is possible, if there were an offshore element to the trades, that the UK’s Financial Conduct Authority or the European Securities and Markets Authority would be keener than their Trump administration counterparts to look into what occurred.
The White House, naturally, denies that anything untoward has occurred, with a spokesman saying it would not tolerate any administration official “illegally profiteering off insider knowledge.”
This administration, and Trump’s unique approach of making and announcing policy, is making some traders very rich, along with a first family who have benefited massively from his return to the presidency via perfectly timed transactions from the administration’s embrace of crypto assets, from its contracts with companies they are exposed to and from the government’s close personal ties with leading US energy and tech company executives and uber-wealthy and powerful Middle Eastern leaders.
With the Republicans in control of Congress, there won’t be any serious congressional investigation of the series of suspect trades that have occurred over the past year. That could change, however, if the Democrats gain control of the House, at least, in the November midterm elections.
They have vowed to probe the dealings of Trump, his family and members of his administration that seem to have added substantially to many of their net worths. Trump is reportedly worried that he will be impeached, again, if he loses control of the House.
Whether or not there was illegal insider activity involved in this week’s trading, or the earlier unusual episodes, or whether it has just been smart trading, the trades demand some level of investigation. There might still be one.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email.
