Quantitative Brokers Research: quote size and liquidity over the past decade

As crude oil prices surge due to Russian sanctions, we analyze the liquidity and top-of-the-book quote size of crude oil futures from June 2012 until now. The figure below shows the average quote size in red and the average daily liquidity in blue. Figure 2 in the attachment, shows an approximated monthly average of liquidity in blue color using EOD data from 2004.

Figure 1 shows the average quote size in red and the average daily liquidity in blue. We can see that both quote size and liquidity are at multi-year lows. Figure 2 shows an approximated monthly average of liquidity in blue color using EOD data from 2004. For comparison, we also show the monthly averages of scaled liquidity in red color using the high-frequency data (as in Figure 1). While the levels are somewhat off between the two averages, the pattern is mostly similar. We can see that the current monthly averages of liquidity using end-of-the-day is the lowest since the financial crisis of 2008.

In summary, the current rise in oil prices is on a weak foundation. Traders are recommended to exercise patience and consider the use of a combination of schedule and arrival price benchmarks to guide trading execution.