If you don’t know what crude oil is, you can’t clearly see the energy market

These days, the crude oil market is hot. Factors such as Middle East geopolitical risks, Trump’s tariff policies, and OPEC’s production cut decisions are all coming together, and as a result, volatility is truly high. But in reality, not many people properly understand what crude oil is and how it moves.

First, let’s clarify what crude oil means. Crude oil is a liquid hydrocarbon mixture naturally generated underground. When it is refined, petroleum products such as gasoline, diesel, and kerosene are produced. It’s not just a source of energy—it’s also the basic raw material for all kinds of industries, including plastics, synthetic fibers, and pharmaceuticals. You could say that the modern economy itself runs on crude oil.

Crude oil is divided into different types depending on its origin and properties. Density is determined by API gravity, and sulfur content is used to distinguish between low-sulfur and high-sulfur crude oil. Generally, low-sulfur light crude oil is preferred because it costs less to refine and causes less environmental pollution. There are three major benchmarks: Brent, WTI, and Dubai crude oil. Brent comes from the North Sea and is used as a global reference. WTI is from Texas, USA, and is central to the North American market. Dubai crude oil is from the Middle East and plays an important role in the Asia region.

At first glance, it may seem complex why crude oil prices move, but ultimately it comes down to a battle between supply and demand. When the global economy grows, demand for crude oil increases and prices rise. Conversely, when the economy is doing poorly, demand falls and prices drop. Just look at how crude oil demand sharply fell during the COVID-19 pandemic—it shows how sensitive the market is.

Supply-side factors are also important. When OPEC adjusts production levels, the market can react strongly. Discovering new oil fields or advances in technology also directly affect supply. Inventory data is another area to pay attention to. If the U.S. Energy Information Administration (EIA) reports an increase in weekly crude oil inventories, it can be interpreted as a signal of oversupply, which may push prices down.

Geopolitical factors can’t be left out. Political instability in the Middle East, policy changes by major oil-producing countries, and changes in international relationships all affect crude oil supply. In recent years, events such as the Russia-Ukraine war and rising tensions in the Middle East have greatly increased price volatility.

Financial markets also can’t be ignored. In particular, the value of the U.S. dollar matters. Since crude oil is priced in dollars, when the dollar strengthens, crude oil becomes relatively more expensive for users of other currencies, reducing demand. Interest rate hikes and stock market volatility also trigger a chain reaction.

Speculative trading is also an element that can’t be ignored. Trades by large investors such as hedge funds can greatly amplify short-term volatility. If investor sentiment is optimistic, prices rise; if it’s pessimistic, prices fall.

Looking at history, the crude oil market has been heavily influenced by major events. Events such as the 1973 oil shock, the 1991 Gulf War, the 2020 pandemic, and the 2022 Russia-Ukraine war all caused sharp swings in prices. More recently, factors such as the strengthening of tariff policies in 2025, a decline in China’s real estate market, and concerns about a global economic slowdown are working together in complex ways.

From a long-term perspective, crude oil demand is expected to increase with global economic growth and the industrial expansion of emerging markets. The International Energy Agency (IEA) projected that by 2028, global crude oil demand would reach 106 million barrels per day. However, as trends such as expanded electric vehicle adoption, a shift to eco-friendly energy, and increased use of renewable energy strengthen, long-term growth in crude oil demand is likely to slow.

In the short term, volatility is hard to avoid. If natural disasters such as hurricanes damage production facilities, supply disruptions can occur. Economic indicators such as GDP growth, unemployment rates, and the Consumer Price Index (CPI) directly affect demand. As things stand, it appears that factors including worries about a global economic slowdown, OPEC+’s production-cut policy, and rising geopolitical risks are all aligning—leading to an expansion in volatility in the crude oil market.

From an investment perspective, there are several options. Futures can target large returns through high leverage, but the risk is also high. They are suitable for professional investors. ETFs offer good accessibility and allow you to invest with small amounts, but they come with management fees and tracking errors. They are better suited for long-term investors. CFDs allow you to earn profits from price movements without owning the underlying asset, making them suitable for short-term traders.

Trade timing also matters. It’s better to trade during periods when the market is actively moving—for example, during U.S. market opening hours or European market opening hours. The timing of the EIA’s weekly crude oil inventory release is also worth paying attention to because volatility tends to be higher around that time.

If you want to invest, risk management is essential. You should use stop-loss orders to limit losses, and diversify your portfolio to spread risk. When using leverage, you must be cautious and adjust your trade size according to your own risk tolerance. This includes adjusting position size, employing hedging strategies, and conducting regular risk assessments.

Ultimately, the crude oil market is a place where both opportunities and risks exist. In the short term, factors such as slowing economic growth, tariff policies, and declines in the real estate market can exert downward pressure on crude oil demand. Meanwhile, OPEC+’s production-cut policy and geopolitical instability can limit supply and act as a driver for higher prices. Investors must carefully analyze the combined effects of these factors, and it is essential to manage risk in a market with high volatility.

In the long term, the energy transition is an unavoidable trend. However, global economic growth and rising energy demand in emerging markets will still support oil consumption, increasing the likelihood that oil prices will stay above a certain level. It’s wise to use a variety of tools such as futures, ETFs, and CFDs in line with your investment goals and risk tolerance, analyze the optimal time to trade, and approach the market with thorough risk management.