Alpha Report
Crude Oil | 2023-2026

1. Executive Summary

Signal Coverage — Crude Oil

CL Macro Review

2023: WTI crude oil entered 2023 elevated but under pressure, retreating from the post-invasion highs of 2022 as recession fears, a stronger dollar, and demand uncertainty weighed on prices through much of the year. OPEC+ responded with a series of voluntary production cuts, most notably Saudi Arabia's unilateral 1 mb/d reduction announced in June, which provided a floor but failed to generate sustained upside, with prices oscillating roughly between $65 and $95/bbl. The Fed's aggressive tightening cycle, which reached its terminal rate in mid-2023 before pausing, acted as a persistent headwind through dollar strength and demand destruction concerns, while the October Hamas-Israel conflict introduced a geopolitical risk premium that proved short-lived as markets assessed limited direct supply disruption.

2024: WTI spent much of 2024 in a broadly rangebound but softening trend, with prices drifting toward the lower end of the $65-$85/bbl band as demand growth from China disappointed relative to expectations and non-OPEC supply, particularly from the U.S., Guyana, and Brazil, continued to expand. OPEC+ repeatedly delayed planned production increases and extended cuts into the year, signaling growing concern about oversupply, yet the cartel's cohesion showed visible strain. The Fed's pivot toward rate cuts beginning in September 2024 offered modest macro support, but the easing cycle was gradual and front-loaded expectations were repeatedly walked back, limiting the commodity's upside response; geopolitically, the ongoing Russia-Ukraine war and Red Sea shipping disruptions added intermittent risk premia without fundamentally altering the supply picture.

2025: WTI entered 2025 facing a contested fundamental backdrop, with analysts divided on whether the market had entered a new bearish regime defined by structural oversupply or whether OPEC+ discipline and geopolitical tail risks could sustain a higher floor. Prices tested multi-year lows at points as OPEC+ signaled a more aggressive return of barrels to market, raising questions about the cartel's long-term strategy and willingness to defend price over market share. The macro environment remained in transition, the Fed held rates in restrictive-but-easing territory, and global growth signals were mixed, while any escalation or de-escalation in Middle East tensions or renewed sanctions pressure on Russian or Iranian barrels had the potential to drive sharp short-term dislocations.

2026: By 2026, the trajectory of WTI will hinge critically on whether the demand slowdown thesis, driven by accelerating energy transition, EV adoption, and softer industrial activity in China and Europe, begins to assert itself more structurally, or whether supply discipline and geopolitical disruption keep prices supported. If OPEC+ fragmentation accelerates or a significant demand shortfall materializes, WTI could approach cyclical lows not seen since the mid-cycle troughs of prior decades, representing a potential extreme on the downside. Conversely, any material escalation involving Iranian supply, broader Middle East conflict, or renewed sanctions on Russian energy exports could produce sharp upside spikes; the prevailing analyst view heading into this period is cautiously bearish on the medium-term structural balance, with regime change risk skewed toward a lower-for-longer price environment absent a significant supply shock.

Signal Performance Overview

2023: The signal demonstrated moderate directional conviction across the year, with win rate hovering just above 50% for most quarters before a notably stronger close in Q4 (58.72% win rate, Sharpe 3.154). The primary risk event was Q3, where the strategy faced its sharpest intra-year drawdown (-9.35%) alongside a deeply negative Sharpe of -3.117, suggesting the signal struggled to adapt during a period of mean-reverting or trend-breaking price action in crude. Overall, the annual profile reflects a strategy that recovered well from mid-year adversity, with the full-year drawdown of -11.43% concentrated almost entirely in that Q3 episode.

2024: Signal quality was inconsistent throughout the year, with two quarters producing negative returns and negative Sharpe ratios, offset by a solid Q4 finish that carried much of the annual performance. The underlying crude market in 2024 was characterized by range compression and choppy directional moves, which appears to have suppressed win rates and limited the strategy's ability to sustain trends, the annual win rate of 52.02% was the weakest of any full year in the sample. Risk was relatively contained, with the annual max drawdown of -5.57% reflecting shallow but persistent headwinds rather than any single acute dislocation.

2025: This was the standout year in the backtest, with the signal exhibiting strong and consistent directional accuracy across three of four quarters, particularly in Q3 and Q4 where Sharpe ratios exceeded 3.0. The strategy appeared well-aligned with trending conditions in crude during this period, sustaining elevated win rates and compounding gains with minimal peak-to-trough erosion, the annual max drawdown of -6.12% is notably tight relative to the magnitude of returns generated. The lone soft quarter (Q1, Sharpe -0.291) was shallow in both loss and drawdown, suggesting the signal degraded gracefully rather than catastrophically during the one period of misalignment.

2026: The year presents a tale of two halves: Q1 delivered the strongest single-quarter Sharpe in the dataset outside of 25Q4, with a win rate near 59% and a contained drawdown, indicating sharp trend-following alignment early in the year. Q2 then reversed sharply, producing the worst quarterly Sharpe in the entire sample (-3.545) and a drawdown of -15.35%, which dominated the annual risk profile and dragged the full-year return to near flat. The severity of the Q2 reversal relative to Q1's strength suggests a potential regime shift in crude price behavior, possibly a volatility spike or trend exhaustion, that the signal was not positioned to navigate.

2. Trading Strategy

In order to produce the metrics below we use the signal in combination with the trading strategy below:

• Leverage: No leverage is applied for this strategy and metrics
• Positions:
  • Entry positions: Every 5 minutes (between 09:45 and 14:00 ET) we decide to take a long, short or no position using 1/51 of our starting portfolio for the day (there are 51 possible openings per day). Each long/short position is then split into 5 parts and executed on each minute for the next 5 minutes following the decision. There is no sizing adjustment.
  • Exit positions: We exit all positions at the end of the day. The exits are split over five minutes (15:55–16:00 ET).
• Costs: 1.5 bp round-turn assumption. Extra exchange/clearing fees not included.
• Contract series & roll: Front-month continuous. Switch at the open T–5 trading days before expiration; stop trading the expiring contract and start trading the next.

For detailed examples, flowcharts, and a full walkthrough of the trading strategy, see Benchmark Trading Strategy.

3. Model Training Data and Timeframe

4. Performance Metrics

Table 1: Quarterly and Annual Metrics

5. Next Steps

Download historical predictions for this month using the Client API and confirm performance in your own test harness.

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• API Documentation: https://quantumsignals.ai/documentation

6. Contact

Please reach out with any questions or comments at: info[at]quantumsignals.ai