Oil and Nat Gas have been great markets to trade recently, although I say that with some reluctance as the only reason they have been volatile and therefore great to trade is because of multiple conflicts that have cost thousands of lives across Europe and the Middle East.
As traders we are all used to having to manage our emotions, so let’s park the emotional response to the causes of recent oil price volatility and take a look at where we are now and what could happen next.
Where is Brent today?
For the purposes of this analysis we will focus on Brent Crude as the oil benchmark, and as I sit here today writing this blog, right now Brent is hovering around $105 a barrel. If we rewind to the start of 2026 we were at a shade over $60 so that’s a 75% increase, date to date. Now the Russia-Ukraine conflict was mature at the start of the year and still raging as strongly as ever so the cause of the current price which is now pushing intraday record highs is entirely due to the Iran conflict right? Well yes, but it’s far more complex than that.
Trading the Headlines
At TraderUI HQ we’ve been monitoring and trading energy markets for a long time and it’s true that developments coming from Iran, Isreal and the US, specifically escalations or deescalations in the conflict have regularly caused pronounced price changes. These spikes and drops have been very tradable by monitoring accounts of the world leaders in question, certain news outlets and some of the open source intel accounts which have been very quick at alerting to issues on the ground locally.
But this short term volatility hides a longer term pattern building up over the last few months which has led us to the current highs.
Factor 1: Ukraine-Russia Conflict
Firstly Ukraine. In recent months both Russia and Ukraine have been targeting each other’s energy platforms and for Ukraine that means a particular focus on Russia’s oil manufacturing. Now you might say ‘but Russian oil is sanctioned and can’t be sold’, that’s true but not by everyone and there are major oil consumers still buying Russian oil (India and China for example). So, reducing Russian oil production by targeting strikes on refineries is still affecting the global oil market.
Next, the Middle East. Notice I’m not simply referring to Iran here because that’s only part of the problem now.
Factor 2: The Strait of Hormuz
Depending on who you listen to the Hormuz Strait is fully open, fully closed, or something in between. There’s a political spin on this from both sides but the truth is there is still nowhere near the amount of oil flowing through the straight as would be the case in peaceful times, and tankers are still being attacked or struck by mines so operators are rightly being cautious. Clearly a supply constraint remains which is driving up prices, but that’s not even close to the end of the story for middle eastern oil. Since the war began there have been huge increases in tanker insurance premiums in and around the Hormuz Straight area and we have the vicious circle of tankers essentially being powered by oil which is now considerably more expensive. The upshot here then is that oil has become more expensive at source and the transport cost has become more expensive too which then compounds the increase to customers.
Factor 3: The Houthis and the Red Sea
But Iran’s attacks on middle east refineries and closing of the Hormuz straight are not the only problem in the region because now we have the Houthis, and it’s their attacks on Saudia Arabia which has been behind the latest price spikes. The Houthis are affiliated to the Iranian leadership so there’s likely some connection between the 2 situations but Saudi have been battling with the Houthis in Yemen for years so this is an escalation of a conflict that has been bubbling for decades. The issues for the global oil market are that the Houthis have been targeting (amongst other things) Saudi oil infrastructure and are now threatening control of another key maritime chokepoint in the Red Sea. The problem here is that whilst a deal between Iran and the US may resolve the Hormuz problem it may not solve the situation on the other side of Saudi Arabia which means that particular supply problem could continue independently.
Factor 4: Winter is coming
Finally, we need to draw attention to how seasonal factors affect the price of oil. Most oil usage is in the Northern Hemisphere as that’s where all the major consumers are based, and the northern hemisphere is now moving from Summer into Winter.
Historically winter always created more energy demand, principally for heating oil and natural gas. Climate change has started to alter this pattern as Summers have become hotter, leading to rising energy demand for cooling but nevertheless the heating season is coming and if the reported super El-Nino develops as scientists are predicting then parts of the Northern Hemisphere may experience a very cold winter which will increase energy (oil and nat gas) demand and therefore prices.
Not a time for TA
So where do we go from here with Brent hovering around ATH’s? At this stage I think you can throw the TA out of the window. This market is almost all news and events driven at the moment and there will undoubtedly be developments in the areas mentioned above that causes further price spikes and falls, so keep your eyes on your dashboard.
What needs to happen for the price to come down?
Simple. The straight needs to reopen and the Saudi/Houthi conflict needs to calm down which will allow middle eastern supply to recover. Then, to a lesser extent, the Russia/Ukraine conflict needs to end or at least reduce focus on energy targets.
Two Scenarios
If most of these things happen then we will see a price reduction fairly quickly, but if none of those things happen and we have a tough winter in the North then we may see Oil climb even further.
I’m no politician so your guess is a good as mine, but hopefully I have given you a few things to think about.
Good luck in the markets!
Damion