Unprecedented! The United States is set to personally "manage" crude oil futures, with Treasury Secretary Janet Yellen looking to "return to old practices"?

The U.S. Treasury is evaluating direct action in the crude oil futures market to curb the surge in oil prices triggered by the conflict with Iran. This would be a rare, and possibly "unprecedented," financial market intervention by Washington, aimed at influencing price expectations rather than utilizing physical oil supplies.

According to Reuters, a senior White House official revealed that the U.S. Treasury may announce a series of measures to address rising energy prices as early as March 5 (Thursday), which may include direct intervention in the oil futures market. Due to the unclear details of the plan, the official declined to disclose specific actions in advance, stating that they did not want to preempt the Treasury's announcement.

The sharp market fluctuations are the direct reason for this intervention. Since the outbreak of conflict with Iran last Saturday, U.S. crude oil futures prices have surged nearly 21% due to disruptions in Middle Eastern oil supply, directly raising fuel costs and triggering market concerns about a rebound in inflation.

Despite the energy market's heightened attention to the potential intervention by the Treasury, President Trump remains calm. He has made it clear that the current priority is military action, not intervening in short-term oil prices, and expects prices to quickly fall back after the conflict ends.

Bassett "Returns to Old Business"

The idea of intervening in the futures market is closely related to Treasury Secretary Bassett's deep financial background.

Bassett previously served as Chief Investment Officer at Soros Fund Management and later founded the macro hedge fund Key Square Group, with decades of experience in currency, bond, and commodity trading.

From an operational perspective, Phil Flynn, a senior analyst at Price Futures Group, described this move as "a highly creative out-of-the-box approach," and pointed out that the specific path may be to "sell near-term futures and buy long-term," thereby lowering the prices of near-month contracts and calming market panic. Flynn also noted that the Treasury's traditional functions focus on fiscal policy, debt management, and occasional currency interventions, and have never ventured into commodities like oil.

Precedent Reference: Historical Experience of ESF and Quantitative Easing

Although intervening in the oil futures market is unprecedented, the U.S. government has used financial tools to stabilize markets before.

During the 2008 financial crisis, the Federal Reserve implemented quantitative easing through large-scale purchases of mortgage-backed securities and government bonds. The Treasury's Exchange Stabilization Fund (ESF) intervened last October by purchasing pesos and providing Argentina with a $20 billion swap line to support its currency exchange rate. Established during the Great Depression, the fund had total assets of $220.85 billion as of January 31 this year and has historically supported the Federal Reserve's lending tools during the global financial crisis of 2008-2009, the COVID-19 pandemic, and the 2023 U.S. banking crisis In addition, Mexico has long implemented a protection plan for oil revenue known as the "Hacienda hedge," which was once the largest financial oil trading operation in the world. However, its hedging target is physical oil inventories, which is fundamentally different from purely using financial instruments.

Analysts: Short-term deterrent effect, difficult to resolve supply gap

Several market analysts have expressed skepticism about the actual effects of the Treasury's intervention, believing that the effectiveness of financial instruments depends on whether physical supply can be restored.

John Paisie, president of Stratas Advisors, stated that this move might suppress speculative behavior by making traders aware that the U.S. government is on the opposing side, thereby easing the rise in oil prices. "But this does not solve the problem of physical supply disruptions— the closure of the Strait of Hormuz has significant impacts, and there is no idle capacity outside the Gulf region. Ultimately, if a large amount of oil supply continues to be obstructed, financial operations will not be effective, and traders will continue to bet on rising oil prices because prices should be higher."

IG market analyst Tony Sycamore believes that even if the Treasury directly intervenes in futures contracts, "it may create a short pause or deter some speculative longs, but I doubt the effect can last more than a day or two. The oil market is vast and global, driven by real supply and demand fundamentals—especially in the context of shipping disruptions in the Strait and the real threats posed by Iranian drones. The Treasury's verbal pressure or symbolic actions are unlikely to change this situation."

Marex analyst Ed Meir pointed out the potential risks: "If they intend to lower prices by selling futures, this is a big gamble and will be an unprecedented intervention in the crude oil market. The most immediate question is: what will they do if prices continue to rise and short positions incur losses? Will they use the Strategic Petroleum Reserve for delivery, or will they continue to add margin and hold on?"

Ben Hoff, head of commodity quantitative research at Société Générale, referred to this potential move as "unprecedented" and emphasized that the influence of financial instruments in the energy market is ultimately limited. "The devil is in the details, and we need to see the specifics of the U.S. government's plan."

Market sentiment intensifies: Hedging trades set records

While Washington is brewing intervention measures, trading activity in the crude oil derivatives market has reached a frenzy. With WTI crude oil futures poised to record the largest single-week increase since March 2022, producers and consumers are rushing to enter the market.

According to Energy Aspects data, the hedging trade volume of U.S. producers reached a record high on one day this week since data collection began in 2023. Traders indicated that this week has become the busiest trading week they have experienced for major traders serving both producers and consumers.

Producers are seizing a rare price window to lock in future sales profits through forward contracts. This sharp sell-off of forward contracts has led to a severe spot premium in the WTI futures curve (i.e., the near-month contract price is much higher than the far-month contract), with the price difference between June and December soaring from $1.48 to $8.21 in just two weeks At the same time, the collar strategy has become more attractive, as producers buy put options to protect the downside while selling call options to reduce hedging costs.

In the face of this situation, crude oil consumers are also not taking it lightly. Rob McLeod, head of energy price risk solutions at Hartree Partners, stated on LinkedIn that this week has been a profound lesson for airlines that once thought hedging was "too expensive" or "too risky," noting that "hoping for good luck is not a strategy."