Brent Crude trade, post Iran attacks

Over the weekend, escalating geopolitical tensions in the Middle East disrupted global energy markets. Following U.S. and Israeli strikes on Iranian targets, shipping activity through the Strait of Hormuz was significantly affected, with hundreds of vessels delaying or suspending transit through the region.

The situation created a classic macro-driven supply shock scenario, where logistical disruptions rather than immediate production losses begin to influence market expectations.

After analysing the macro environment and historical market behaviour during similar geopolitical events, the society's Quant Trading & Investments Team identified a potential long opportunity in Brent crude futures. The trade combined macro analysis, statistical signals, and structured risk management.

Strait of Hormuz, the supply chokepoint

One of the key drivers of the trade was the sudden disruption to tanker activity around the Strait of Hormuz, one of the most critical energy chokepoints in the world.

Reuters reported that more than 150 tankers, including crude oil and LNG vessels, had dropped anchor in Gulf waters, while many others were waiting outside the Strait. Several tanker owners and trading houses temporarily suspended shipments as security risks increased.

Historical precedents

Before entering the trade, we analysed how oil markets had reacted to similar geopolitical events in the past. Several historical examples showed consistent patterns.

2019 Abqaiq Oil Facility Attack

Drone strikes on Saudi Arabia's Abqaiq facility temporarily removed around 5% of global oil supply, triggering a ~20% surge in Brent crude at market open, the largest single-day move since the Gulf War.

2020 Soleimani Strike

Following the U.S. strike that killed Iranian General Qassem Soleimani, Brent crude rose roughly 4% in early futures trading as markets priced in the possibility of escalation.

2019 Gulf of Oman Tanker Attacks

Attacks on oil tankers near the Strait of Hormuz triggered a ~4% increase in oil prices, reflecting concerns over shipping disruptions.

Across these cases, the pattern was similar:

1. Geopolitical escalation
2. Disruption to shipping or supply
3. Immediate repricing of oil futures

Given the similarities to the current situation, the probability of an upward move in oil prices was considered elevated.

Trade execution

The position was opened shortly after oil futures markets reopened following the weekend developments. Rather than entering immediately at the market open, the trade was executed after a short delay to allow the initial volatility spike to stabilise.

As part of the QuantFin Society's trading activities, the position was paper traded within a simulated portfolio environment, allowing the team to test trade ideas and risk management frameworks without committing real capital.

Once volatility began to normalise, a long position in Brent crude futures was established.

This allowed the trade to control approximately $26k worth of Brent crude exposure while limiting downside risk to under 1% of the portfolio.

Leverage and risk management

The trade used approximately 50× leverage, meaning that only around $520 of margin was required to control the full exposure. However, leverage does not determine portfolio risk. Risk is defined by position size and stop-loss placement, not by margin requirements.

Total downside risk remained capped at $900, or 0.9% of the portfolio, which falls well within the range used by professional discretionary traders.

Typical risk ranges:

• Retail Traders: 1-3%
• Professional discretionary traders: 0.5-1%
• Systematic funds: 0.25-1%

Profit target and outcome

The trade was structured as a 2.5R setup, meaning the expected reward was approximately 2.5 times the initial risk.

Expected return: $2,250. Realised profit: $2,179.

The slightly lower realised profit likely reflects small execution differences such as spreads or minor slippage, which are common in volatile commodity markets.

The trade generated a 2.18% increase in total portfolio value.

Trade thesis summary

The trade was based on a multi-factor approach, combining macro analysis with quantitative and technical signals.

• Macro thesis: Supply disruption risk caused by tanker congestion and geopolitical escalation in the Strait of Hormuz.
• Statistical signal: Brent crude trading significantly below its recent moving average, suggesting short-term undervaluation.
• Technical entry: Position entered during early market reopening volatility, with the stop placed below the opening gap to avoid normal market noise.

Combining these independent signals generally produces stronger trade setups than relying on a single indicator.

Lessons and improvements

While the trade outcome was successful, there are several areas that could improve execution in future trades.

• Reducing leverage to 10-20× could reduce operational risk during periods of extreme volatility.
• Scaling into positions using multiple entries may also reduce slippage and improve average entry prices.
• Placing stops slightly away from obvious liquidity zones can help avoid stop-hunting behaviour that often occurs in volatile commodities markets.

Another potential improvement would be hedging directional exposure using broader energy indices. For example, a long Brent crude position could be partially hedged with an energy equity index such as the S&P 500 Energy Index or the Energy Select Sector SPDR Fund. This type of relative positioning can help isolate the oil price thesis while reducing broader market risk or equity market spillovers during periods of macro volatility.

More advanced strategies could also involve spread trades within the oil complex itself. For example, traders may position long Brent while shorting WTI or refined product spreads. These structures allow the trade to focus more directly on supply disruptions or regional imbalances rather than purely directional oil price movements.

Closing notes

This Brent crude trade demonstrates how macro analysis combined with disciplined risk management can produce high-probability opportunities in commodity markets. Geopolitical disruptions frequently create temporary supply shocks that markets must rapidly price in. By analysing historical precedents and applying structured position sizing, the trade captured a strong move in Brent crude while maintaining controlled downside risk.

The final profit of $2,179, representing a 2.18% portfolio return and 8.37% return on trade capital, highlights the effectiveness of combining macro research with systematic risk management.

At QuantFin Society, we regularly analyse global markets, test trading strategies, and discuss macroeconomic developments affecting asset prices. Students interested in trading, quantitative finance, and market research are encouraged to join our discussions and research sessions.

Disclaimer: This article is provided for educational purposes only and does not constitute financial or investment advice. The University of Exeter QuantFin Society accepts no responsibility for any financial decisions made based on the information presented.