Oil matters to every Canadian trader, even those who never trade it. It’s one of Canada’s biggest exports, it feeds into inflation, and for years it was one of the main drivers of the loonie. Many forex platforms also let you trade crude oil directly, usually as WTI (West Texas Intermediate).
I traded oil heavily through the COVID crash in 2020, and it taught me one of the most expensive lessons of my career. Here’s what moves oil, what happened that spring, and how I approach it now.
What moves oil
Oil prices come down to supply and demand, but plenty of things affect each side:
- Supply decisions by OPEC+, the group of major producers that sets output targets.
- Geopolitics. Conflict in or near producing regions, like this year’s Middle East conflict, can push prices up quickly.
- Inventories. The weekly US crude inventory report, every Wednesday at 10:30 a.m. Eastern, can move prices sharply.
- The global economy. Strong growth means more demand; recessions mean less.
- The US dollar. Oil is priced in dollars, so dollar strength can weigh on it.
- Seasonal demand, such as summer driving and winter heating.
Benchmarks Canadians should know
| Benchmark | What it is |
|---|---|
| WTI | US light crude, delivered at Cushing, Oklahoma. The one most forex platforms quote |
| Brent | North Sea crude, the main international benchmark |
| Western Canadian Select (WCS) | Heavier Canadian crude, which usually trades at a discount to WTI |
The WCS discount matters for Canada. When it widens, Canadian producers earn less per barrel even if WTI is high.
April 2020: when oil went negative
Here’s the story. As COVID shut down economies in early 2020, demand for oil collapsed. I started buying when WTI fell to around $25 a barrel. It looked cheap. When it kept falling, I kept buying, because it looked even cheaper.
Then, on April 20, 2020, the expiring May WTI futures contract did something that had never happened before: it settled at about negative $37 a barrel. Sellers were effectively paying buyers to take oil, because storage was nearly full and nobody holding an expiring contract wanted to take physical delivery of barrels they had nowhere to put.
That move completely destroyed my position.
A few lessons from it:
- “Cheap” isn’t a reason to buy. A price that looks low can always go lower. I was buying based on a number, not on evidence that the market had turned.
- Know what you’re trading. Futures contracts expire. CFDs on oil are often based on futures and roll from one contract to the next, and how your broker handles that matters a lot in extreme conditions.
- Averaging down without a plan multiplies the damage. Each new purchase added risk at exactly the wrong time. We covered the difference between planned scaling and averaging down in our guide to trading gold.
How I look for a bottom now
These days I don’t buy because a price looks low. I wait for the chart to show that sellers have actually lost control:
- A descending resistance line drawn across the falling highs.
- A break above that line, with a candle closing above it, not just a wick.
- A hold: price pulls back, stays above the broken line, and forms a higher low.
- Only then consider a long position, with a stop below the higher low.
You’ll never catch the exact bottom this way. That’s fine. You give up the first part of the move in exchange for evidence that the trend has actually changed. It’s the same idea as the change of character we explained in market structure: wait for the pattern to change before acting on it.
Oil and the Canadian dollar
For years, higher oil meant a stronger loonie. That link has weakened a lot recently, as we explained in USD/CAD intraday: oil spiked this year without the Canadian dollar following. Interest rate differentials, risk sentiment and trade tensions have often mattered more.
So watch oil if you trade USD/CAD, but don’t trade the loonie off an oil chart alone. Our guide to what drives the Canadian dollar covers the bigger picture.
Practical tips for trading oil
- Know your broker’s contract. Check the size, the value per $1 move, and how and when it rolls.
- Size small. Oil can move several percent in a day, and far more in a crisis. Our guide to margin calls shows how fast oversized positions get into trouble.
- Mark Wednesday 10:30 a.m. on your calendar for the inventory report.
- Watch OPEC+ meetings and headlines about supply.
- Never buy a falling market just because it’s down a lot.
The bottom line
Oil moves on supply, demand, geopolitics, inventories and the dollar, and it can move far more than most traders expect. In April 2020, WTI futures fell below zero, and anyone buying because it “looked cheap” paid for it, me included. Don’t buy based on price alone. Wait for a descending resistance break, a hold, and a higher low before calling a bottom. And size oil trades for the extreme moves it’s capable of.
Disclosure: The author, Mike Harding, founded Academy of Financial Markets in Toronto and teaches its mentorship program. This article is educational and is not financial advice. Trading commodities on margin carries a high level of risk and may not be suitable for all investors.