West Texas Intermediate settled at $75.23 on Tuesday, down 6.36% on the session, after falling 5.11% on Monday. The two sessions together took the front month contract down 11.2% from its $84.67 close on July 31. Brent finished Tuesday at $78.87, down 5.85%, and is off roughly 10% on the week.
The moves followed Secretary of State Marco Rubio confirming progress in Oman-mediated talks on Strait of Hormuz transit, and Treasury Secretary Scott Bessent saying an agreement could arrive as early as Tuesday or Wednesday. Both officials said no final agreement had been reached.
The Frequency Is the Signal, Not the Level
The more instructive number is not the size of Tuesday’s move but how ordinary a move of that size has become. Across the 22 trading sessions from July 6 to August 4, WTI changed by 2% or more on twelve of them. Eight of those twelve exceeded 4%. The largest was a 9.14% gain on July 13.
A market that reprices a physical commodity by more than 2% on a majority of sessions is not processing changes in supply. Physical crude supply does not move that way. What is moving is the probability the market assigns to a diplomatic outcome, and that probability is being revised on each new statement from each new official.
Between those revisions the price has travelled a long way in both directions. WTI bottomed at $68.55 on July 6 and reached $87.01 on July 23, a gain of 26.9% across twelve sessions, before giving back 13.5% of it by Tuesday.
What Kahneman and Tversky Identified in 1973
Daniel Kahneman and Amos Tversky described the mechanism in On the Psychology of Prediction, published in Psychological Review in 1973. Asked to judge how likely a specific case is, people evaluate how closely that case resembles the outcome being considered, and they discount how often that outcome actually occurs in the wider class of similar cases. The technical name is base-rate neglect. The intuitive name is that a vivid story beats a boring frequency.
The current Hormuz negotiation is a vivid story. It has named principals, a stated deadline, a mediating country, and a public statement from a Treasury Secretary that a deal could land within a day. Everything about it is specific and concrete.
The base rate is neither. It is a count of how often announced de-escalations in this conflict have converted into durable ones, and it is available to anyone who cares to assemble it.
The June Precedent Is the Base Rate
On June 24, as tankers transited the strait under a transit memorandum, WTI closed at $70.34 after touching $69.63, the first time the contract had traded below $70 since March 2. By June 25 both benchmarks had reached their lowest levels since February 27, back to where they stood before the war began. The de-escalation was priced substantially and quickly.
It did not hold. On July 8, after Washington declared the arrangement over and resumed strikes, WTI rose 4.4% to $73.52 and Brent gained 5.2% to $78.02. The round trip from that point to the July 23 high and back to Tuesday’s close is the fourth full reversal in a market that has now spent five months alternating between the two narratives.
The frequency of large daily moves is what a market looks like when participants are trading each new headline against a framework that has no memory of the last one. Twelve sessions beyond 2% in twenty-two is the shape of that behaviour.
Attention Is the Transmission Mechanism
Brad Barber and Terrance Odean documented the delivery route in All That Glitters, published in the Review of Financial Studies in 2008. Studying trading records across both retail and institutional accounts, they found that individual investors are net buyers of attention-grabbing stocks: those in the news, those with abnormal volume, those with extreme one-day returns. Institutions showed the pattern far more weakly.
The asymmetry matters because attention is not distributed evenly across information. A Treasury Secretary saying a deal could come tomorrow generates attention. A count of how many previous deals were announced and did not hold generates none. Tversky and Kahneman named this second mechanism the availability heuristic in Judgment under Uncertainty, published in Science in 1974: the ease with which an instance comes to mind is treated as evidence of how common it is.
Recent, loud, and specific beats old, quiet, and statistical. That is the whole of it.
Canadian Exposure Runs Through Three Channels at Once
Twelve of twenty-two sessions moved by 2% or more, and the distribution of those moves shows a market repricing the same diplomatic question repeatedly rather than absorbing new information about physical supply.
The July 13 gain of 9.14% followed the breakdown of the June transit memorandum; the August 3 and August 4 declines followed Washington’s decision to delay planned strikes and Omani mediation of a transit arrangement. Source: Investing.com daily settlements.
For a Canadian portfolio the exposure is not confined to the energy sleeve. Statistics Canada reported on Tuesday that total exports rose 13.1% in the second quarter, the strongest quarterly gain in percentage terms since the third quarter of 2020, with almost half of that increase coming from energy products on higher prices. The same oil price that sits inside the equity allocation also sits inside the national accounts and, through the terms of trade, inside the currency.
The Canadian dollar traded at 71.08 cents US on Tuesday, down from 71.28 cents on Friday. A Canadian holding a domestic balanced portfolio is therefore exposed to the Hormuz headline three times over: in the equity sleeve, in the currency, and in the macro data that will shape the Bank of Canada’s September 2 decision.
That concentration is what converts a well-documented judgment error into a portfolio outcome. In a market where a single headline can move the relevant price by 6% before lunch, the cost of substituting the vivid case for the historical frequency is not a rounding error. It is the difference between holding a position through a fourth round trip and selling into the bottom of one.