Crude Oil and Market Volatility: What Investors Need to Know April 22, 2026

Crude Oil, also known as “Black Gold”, has played a significant role in advancing human civilisation. It has powered economies during times of peace albeit highly contested during periods of conflict. Crude oil, as a commodity, has contributed to the rise of nations but the decline of others. The price of crude oil has a profound influence on global economic growth and spending power of oil-rich countries.

The Grades of Crude Oil

The first factor is density, measured by API gravity (expressed as light versus heavy). A higher API gravity indicates lower density and therefore lighter crude oil². Light crude oil can be likened to vegetable oil, while heavy crude resembles the consistency of peanut butter.

Lighter crude flows more easily and can be transported through pipelines with greater efficiency compared to the heavier crude. As such, it is also easier to refine and can be made into high-value end products such as gasoline, diesel, and jet fuel³. In contrast, heavy crude requires more energy-intensive refining processes, making it pricier overall.

The second factor is the sulphur content of the crude oil, which categorises it as either sweet or sour. Sweet crude contains less than 1% sulphur, while sour crude typically contains between 1% and 2%. Sweet crude is generally easier and less costly to refine, similar to light crude, and therefore tends to command a premium over sour or heavier grades.

Source: U.S. Energy Information Administration⁴

The diagram above illustrates the range of crude oil grades across regions and major producing countries. Globally, three primary benchmarks are used to price crude oil: North Sea Brent, West Texas Intermediate (WTI), and Dubai/Oman. Brent crude is the most widely used benchmark, pricing oil across Europe, Africa, the Mediterranean, and parts of Asia, including Australia⁵. It is typically associated with light, sweet crude.

WTI is primarily used to price US light, sweet crude, with Cushing, Oklahoma as its main trading hub, and also serves as a reference for imports from regions such as Canada and Latin America. The Dubai/Oman benchmark is commonly used for Middle Eastern crude and is widely referenced by Asian refineries. Unlike Brent and WTI, it is generally classified as medium and sour. With approximately 60% to over 70% of Asia’s crude imports originating from the Middle East, the Dubai/Oman benchmark remains critical to the region’s energy supply⁶.

Source: Kpler │Ruth Chai

Market Forces that Affect Oil Prices

Like many commodities, both the supply and demand for crude oil plays a large role in influencing the overall price. In 2023, the global oil production stood at approximately 102.666 million barrels per day while world consumption of oil was 101.249 million barrels per day ⁷. This relatively narrow margin highlights the delicate balance between supply and demand in the oil market.

There is limited flexibility to significantly increase long-term supply. Global capital expenditure in the oil and gas sector has declined over time, partly due to environmental considerations and the transition towards cleaner energy sources. As a result, the market is more sensitive to disruptions.

Supply shocks often arrive in the form of geopolitical conflicts like infrastructure attacks, unexpected production cuts, and policy shifts. For example, the 1973 Arab oil embargo and the supply disruptions experienced during the, COVID-19 pandemic in 2020. Demand shocks, on the other hand, are typically influenced by macroeconomic conditions, geopolitical tensions, and global crises. For instance, conflicts such as the Russia–Ukraine war and tensions involving Iran have supported higher oil demand due to increased uncertainty and energy security concerns. Conversely, the COVID-19 pandemic led to a sharp decline in global demand as economic activity slowed significantly.

Iran Conflict & Supply Shock

On 28 February 2026, US and Israel launched coordinated strikes on Iran, targeting military infrastructure, leadership, and elements of its nuclear programme⁸. While the initial focus was on strategic assets, Iran’s response escalated tensions across the region, raising concerns over disruptions to global oil logistics.

Iran retaliated by targeting key energy infrastructure across the Gulf, including facilities in Saudi Arabia, Qatar, the UAE, and Oman⁹. These actions disrupted production and signalled heightened risks to regional oil supply.

Of particular concern is the Strait of Hormuz, a critical maritime route through which a significant portion of the world’s oil supply is transported. Iran has threatened to restrict passage through the strait, creating fears of a major supply bottleneck¹⁰. Any sustained disruption could severely impact global oil flows, particularly for Asian economies that rely heavily on Middle Eastern exports.

As a result, oil prices surged sharply. By 9 March 2026, Brent crude reached approximately US$119.50 per barrel, while WTI rose to around US$119.48 per barrel, marking significant increases from pre-conflict levels¹¹.

Source: Bloomberg

Interconnectedness of Oil and World Economies

Global economies remain heavily reliant on crude oil, with consumption estimated at approximately 104 million barrels per day in 2025, a 0.7% increase from 2024¹². Crude oil and its by-products fuels not just the oil and gas industry, but global logistics, travel, construction, and even everyday products. While countries such as the US, Germany, Japan, and members of the International Energy Agency (IEA) have released strategic reserves to ease short-term supply disruptions from the Iran conflict¹³, such measures are temporary and do not resolve underlying supply risks.

How Companies Manage Oil Price Volatility

Industries highly exposed to fuel costs, such as airlines and cruise operators, typically adopt hedging strategies to manage price volatility. More disciplined firms may hedge around 60% of fuel costs over periods ranging from six months to two years¹⁴. In contrast, companies that do not adopt hedging practices will be greatly affected and likely to see their fuel costs effectively doubled, resulting in thinner margins or even loss generating.

Potential inflationary pressure on Singapore

Sustained elevated oil prices could exert inflationary pressure on Singapore, which is highly dependent on imports. Higher energy costs would directly impact sectors such as utilities and transport, with knock-on effects across food, retail, and construction.

Petrol prices have already risen, with 95-octane fuel increasing from S$2.88 to S$3.35 as of 13 March 2026, reflecting a notable increase following recent geopolitical developments. Prolonged high oil prices may contribute to a higher cost of living and broader inflationary pressures¹⁵.

What can investors do in times of volatility and oil price hikes?

Having proper risk management and asset allocation is key in long term investing, especially during times of uncertainty. Most investors only care about maximising returns, with the saying “High Risk, High return, no Risk, No Return”, the correct way is to maximise risk adjusted returns over just returns. By gaining exposure to assets like gold, bonds and other defensive stocks that are traditionally negatively correlated with risk assets (equities and indices), investors are able to enjoy a greater risk adjusted return. Depending on individual circumstances, a typical allocation to defensive assets may range between 10% and 40% of a portfolio. Regular portfolio rebalancing, conducted periodically throughout the year, helps maintain discipline and alignment with long-term investment objectives.

Conclusion

Crude oil remains one of the most strategically important commodities in the global economy. Price fluctuations can quickly ripple through financial markets and impact economic stability.

For investors, understanding the dynamics of the oil market is essential in navigating periods of uncertainty. A disciplined approach to risk management and portfolio construction can help build resilience and support long-term wealth creation.

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References:

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