Oil trading during times of uncertainty: What you need to know
Reading time: 7 minutes
Oil prices experienced periods of downward pressure in 2025, due to an oversupplied global market, averaging about US$69 per barrel for the year, the lowest since 2020. That story completely changed in March 2026, following the start of the US-Iran conflict. Brent crude futures breached the US$100 mark by 8 March, racing past US$110 in the weeks that followed as traders frantically began pricing in worst-case scenarios.
Analyst forecasts intensified as geopolitical tensions in the Middle East boiled over. Macquarie Group issued a grave warning that the price of crude could skyrocket to US$200 per barrel if full-scale supply disruptions in the Strait of Hormuz continued through Q2 2026. Some analysts suggest that the market may be severely underestimating the crisis.
Such volatility can create oil trading opportunities, while also increasing risk. Here’s what else you need to know to fine-tune your trading strategies.
What’s driving oil prices in 2026?
When geopolitical instability takes centre stage, traditional supply and demand models take a back seat. To understand why oil prices are volatile, you need to look at what’s moving the energy markets so far in 2026.
Geopolitical risk premium
Crude prices not only tell you what physical oil is worth today, but also what the market expects it to be worth tomorrow. When the US-Iran war broke out in February 2026, oil futures prices rose due to the geopolitical risk premium, rather than due to global oil consumption rising instantly. Geopolitical risk premium is the extra cost added to each barrel of oil when concerns regarding potential supply disruptions rise. In times of war or heightened tensions, this premium can add US$20, US$30, or even US$50 of the total barrel price, depending on the severity of the threat.
Supply chain & logistics shock
The closure of the Strait of Hormuz became the largest worry. Roughly 20% of the world’s daily petroleum liquids consumption passes through this narrow waterway. When Tehran effectively restricted transit through the Strait in the wake of the conflict, it trapped almost one-fifth of the world’s daily oil supply in the Persian Gulf. This affected not just oil supply but also shipping costs, insurance premiums for tankers and the supply of petroleum-derived products like fertiliser.
Inventory levels & price asymmetry
During periods of supply crisis, organisations like the International Energy Agency (IEA) can coordinate the release of emergency oil reserves to stabilise the market. This was evident on 11 March, when a coordinated release of strategic reserves was announced in response to heightened supply concerns. However, energy experts warn that these buffers are only temporary. Analysts also point out that even a record release of strategic stocks might only cover a few weeks of major disruption in the Gulf. This can lead to price asymmetry, which means that any piece of bad news can lead to major price spikes, but good news won’t necessarily bring the price down as quickly or as much.
Financialisation of oil
Oil is one of the most actively traded financial assets. For every physical barrel of oil produced, dozens of contracts are traded in the futures and options markets. When volatility rises, there is an influx of speculative capital pouring into energy commodities. At these times, hedge funds, algorithmic trading systems and retail traders all try to capture the momentum. This activity magnifies price swings, often detaching short-term oil prices from actual physical supply and demand.
How to trade oil during uncertain times
Let’s take a look at oil trading strategies popularly used to navigate market volatility.
Trend following
Major geopolitical crises can lead to strong, directional trends in oil prices that can last for weeks, months or even years. This is where trend-following trading strategies can be effective. Rather than trying to guess the absolute top or bottom of the market, trend followers use technical analysis and price action to identify the direction of the momentum and attempt to capture it.
Traders often look at the 50- and 200-day Exponential Moving Averages (EMA) to identify the broader trend. If the shorter-term moving average crosses above the longer-term one (the classic Golden Cross), it signals strong bullish momentum.
Since volatility can rise exponentially during crises, trend followers can use the Average True Range (ATR) to adjust their position sizes and stop-loss levels. By measuring how much an asset typically moves, the ATR allows traders to reduce position sizes during high volatility, protecting against large, random price swings. Also, a higher ATR usually signals that the market is moving in wider daily ranges, where wider stop-losses can help avoid getting stopped out prematurely.
Range and mean-reversion trading
Even during a crisis, there will be periods of relative calm or consolidation, where the price bounces between established support and resistance levels. Mean-reversion traders operate on the assumption that extreme price moves will eventually pull back to a historical average.
Bollinger Bands is a popular indicator among range traders. It consists of a simple moving average (20-period) and two standard deviation lines above and below it. In a volatile market, when oil prices touch or breach the outer bands, it can signal that oil is overbought or oversold. This can present an opportunity to trade a reversal back toward the middle band.
When oil enters a consolidation phase, the Relative Strength Index (RSI) can also be a useful indicator. An RSI above 70 suggests overbought conditions, while a reading below 30 indicates an oversold market. Combining the RSI with clear horizontal support or resistance levels can help range traders identify entry levels for short-term, counter-trend positions. Additionally, the RSI commonly delivers positive and negative divergences, which can support overbought or oversold signals.
Event-driven trading
During times of conflict, headline risk is at its absolute peak. A single post on X from a world leader, an official statement from the Organization of the Petroleum Exporting Countries Plus (OPEC+) about production quotas, or a reported strike on a shipping tanker can send oil prices up or down within minutes. Event-driven traders attempt to capture these catalyst moments. They keep a hyper-vigilant eye on real-time news feeds.
Experienced traders attempt to capture maximum price volatility by either opening a position just before an expected new release or immediately after a news break. Beginners using this oil trading strategy tend to wait for the initial reaction of the market to a news event to subside, and then trade the continuation or fading of that move once the market has had a few minutes to digest the news.
Accessing oil markets via CFDs
Contracts for Difference (CFDs) are among the most popular methods to trade commodities, including oil. One of the biggest benefits of CFDs is that you don’t need to own the underlying asset to trade it. You simply enter a contract to exchange the price difference in the asset from the time the contract begins to when it is closed. Another advantage of CFD trading is the ability to trade using leverage. This means you only need to deposit a portion of the total trade value (known as margin) to open a position, while gaining exposure to the full position size.
However, remember that leverage is often called a double-edged sword because it not only amplifies potential profits but also magnifies potential losses. This makes risk management and thorough research crucial when trading.
With CFDs, you get to trade both rising and falling prices. If your analysis suggests that oil prices might decline, you can enter a short position and enter long if you expect the price to rise.
Managing risks during market volatility
No matter how brilliant your trading strategies might be, entering a position without appropriate risk management leaves your capital vulnerable to sudden market moves. Plus, high volatility means that the risk of both slippage, and major price gaps increases.
To help protect your capital, keep your position sizes small relative to your overall account size. Experienced traders typically follow the ‘Rule of 1%’ where they do not risk more than 1% of their total trading capital on a single position.
In addition, placing stop-loss and take profit orders is prudent when you open a position. Try to keep your emotions in check. When the market is volatile, emotions also tend to spike, and it can become tempting to give in to impulsive decisions. In a market fuelled by headlines and fear, staying objective is one of your greatest competitive advantages.
Hedging is another popular risk management strategy. When the market is volatile, trading is more than just about making speculative profits; it’s about protecting your portfolio and trading capital. For example, some traders might balance out their long position in oil stocks or commodity CFDs with an uncorrelated or negatively correlated short position, like one in the US dollar. This way, if the market moves unfavourably for your long position, your short position will limit the losses. This way, if the market moves unfavourably for your long position, your short position will limit the losses.
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