Trading Oil Amid Heightened Geopolitical Uncertainty

Crude oil is the world’s most widely traded commodity. Its price can fluctuate wildly due to the demand-supply situation and the risk of market disruptions resulting from various factors, including wars and geopolitical tensions. For instance, oil prices surged past $82 per barrel in mid-January when US President Donald Trump entered the White House. Discover the factors that impact oil prices to make more informed portfolio-related decisions. 

Things to Know Before Trading Oil

• Brent crude is the benchmark used for the light oil market in Europe, Africa and the Middle East, while the West Texas Intermediate (WTI) is the benchmark for the US light oil market. While Brent crude is sourced from oil fields in the North Sea, WTI is sourced from US oil fields.
• The Organisation of the Petroleum Exporting Countries (OPEC), which includes 23oil-producing countries, controls around 40% of the global oil supply and distribution. It is considered as the leading organisational force in determining oil prices. Any change in its production targets tends to affect oil prices.
• Crude oil prices move with changing perceptions around its supply and demand. Any disruption in supply will take oil prices higher, while oversupply will exert pressure. A decline in demand has a negative impact on oil prices, while demand growth has a positive impact.
• Economic growth, industrial production, tourism, transportation, population growth, and seasonal changes impact oil demand. Oil supply levels are influenced by political developments, technological innovations in crude extraction and the use of alternative energy sources.
• Oil markets are undergoing structural changes, as the main drivers of demand and supply growth in the past 15 years are fading. China, the main contributor of global oil demand, is witnessing a surge in the use of electric vehicles and the deployment of rail and trucks on natural gas. The pace of increase in US oil supply is expected to slow, despite the heightened focus on drilling.
• Oil trading is done through derivatives, which allows traders to speculate on changes in prices without having to own or transfer the physical commodity. Trading in oil CFDs (contracts for difference) requires traders to keep track of news related to oil inventory levels, developments on the geopolitical front, and OPEC announcements.

Understanding Volatility in Oil Markets

Did you know that oil prices turned negative during the pandemic? Oil prices fell to -$37 per barrel, hitting negative territory for the first time in history on April 20, 2020, with investors panicking about the impact of the pandemic. Even as the pandemic spread, oil prices recovered quickly to climb past $40 in less than two months. 

Crude oil prices can be highly volatile during a trading session, responding rapidly to the latest developments. Yet, they remain stable in the near term, as oil demand and supply have proven to be relatively inelastic. This is because oil producers cannot change their capacity in a hurry and the demand from transportation or population growth does not fluctuate than often. Only a large change can rebalance the physical supply and demand for oil. 

Understanding the behaviour of oil markets is very important for traders, as this helps placing stop loss and take profit at the most appropriate points. Let’s say you expect oil prices to continue to climb, and you open a position accordingly. You wouldn’t want to place the stop loss so close that it gets executed in a sudden dip before oil prices resume their ongoing uptrend.

Oil Prices and Geopolitical Developments

Oil prices jumped more than 7% on the day after Israel launched airstrikes in Iran overnight in June 2025. Crude oil prices can respond with significant volatility to geopolitical developments, oscillating between rallies and corrections.

Although these are short-lived, they offer attractive trading opportunities for intraday and day traders. 

Brent prices climbed 5% after the 9/11 attacks but dropped 25% in the next 14 days over concerns around weakening oil demand from the US. Similarly, crude oil prices jumped 30% on the news of Russia attacking Ukraine in February 2022. But prices returned to their pre-invasion levels in the next eight weeks. 

Trading Oil Amid Geopolitical Uncertainty 

Trading oil amid geopolitical disruption requires you to remain abreast of the news. Look out for conflicts, political instability in oil-producing regions like the Middle East and Russia), and international sanctions. All these can instantly impact supply and create price spikes. 

Also take stock of any sudden changes in supply and demand. Changes in supply can stem from decisions made by the OPEC+ and the amount of shale output, while demand may fluctuate based on seasonal changes (sudden cold spell) and global economic growth.

Changes in the value of the US dollar. Any strength in the US dollar sends oil prices lower. This is because oil prices are quoted in the US dollar and a rise in the currency makes oil expensive for foreign currency holders, impacting demand. Similarly, weakness in the US dollar pushes oil prices higher.

CFDs allow traders to find attractive opportunities in both rising and falling markets. Bollinger Bands can be used to measure volatility, as the bands widen during periods of high volatility and contract during low volatility. This may be combined with the Relative Strength Index (RSI) to identify overbought or oversold conditions, which may signal potential reversals in volatile markets.

To Sum Up

• Oil prices can be highly volatile and respond to changes in demand and supply due to various factors, including geopolitical changes.
• Oil price fluctuations due to geopolitical tensions have historically been temporary due to the inelasticity of demand and supply.
• Oil markets are undergoing a structural change with demand supply dynamics expected to change.
• Oil trading through CFDs allows traders to speculate on price changes without actually owning the commodity.

Disclaimer: 

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