Energy Equities and Commodities: A Strategic Hedge Against Trade War-Driven Oil Demand Risks

The global oil market in 2025 is a battlefield of competing forces. On one side, trade wars and geopolitical tensions threaten to stifle demand growth. On the other, surging supply from OPEC+ unwinding cuts and U.S. shale expansion creates a surplus that pressures prices. For investors, navigating this volatile landscape requires a nuanced approach—one that leverages energy equities and commodities as a hedge against trade policy-driven uncertainty.

The Dual Threat to Oil Demand

The International Energy Agency (IEA) forecasts a modest 720 kb/d increase in global oil demand in 2025, but this growth is shadowed by weak second-quarter consumption in the U.S. and China, the world's two largest oil markets. Trade tensions have exacerbated uncertainty, though a temporary tariff détente between the U.S. and China has offered short-term relief. However, the broader economic outlook remains dour, particularly for China, whose slowing industrial activity could limit its ability to absorb excess oil supply.

Meanwhile, U.S. tariffs on Brazilian crude and other imports risk disrupting global trade flows, while the Russia-Ukraine conflict and Israel-Iran tensions keep geopolitical risks elevated. The Strait of Hormuz, a critical oil artery, remains a flashpoint, with Iran's threats to close the strait inflating the risk premium in oil prices. The result? A market caught between oversupply and fragile demand, with prices expected to hover around $66/b in the second half of 2025, per the Short Term Energy Outlook (STEO).

Strategic Positioning: Refiners as a Safe Bet

In this environment, refiners are emerging as a compelling hedge. Companies like Valero Energy (VLO) and Marathon Petroleum (MPC) benefit from lower crude prices and stable refined product margins, particularly during peak demand periods like summer travel. Their ability to exploit regional price differentials—such as the European diesel deficit—offers insulation from trade war disruptions.

For instance, VLO's Gulf Coast refining operations position it to capitalize on U.S. shale's low-cost crude and export markets. Similarly, MPC's global refining network allows it to pivot quickly to high-margin opportunities. Refiners with strong cash flows and low leverage are particularly attractive, as they can withstand short-term volatility while reinvesting in long-term growth.

Large Integrated Oil Firms: Diversification as a Shield

Large integrated oil majors like ExxonMobil (XOM) and Chevron (CVX) offer another layer of resilience. These companies combine upstream, midstream, and downstream operations, enabling them to hedge against price swings. XOM's LNG expansion in Australia and the U.S., for example, provides access to high-growth markets in Asia and Europe, where energy security concerns are driving demand.

Chevron's recent investments in LNG and its strategic partnerships in Africa and the Middle East further diversify its exposure. Both firms have robust balance sheets, allowing them to maintain dividends and reinvest in low-cost production even amid trade war headwinds.

LNG and Uranium: Strategic Commodity Plays

Liquefied natural gas (LNG) producers are also well-positioned to hedge against trade war volatility. As countries seek to diversify energy sources away from Russian gas, LNG demand is surging. ConocoPhillips (COP) and BP PLC (BP) are expanding their LNG infrastructure, with COP's recent acquisition of Marathon Oil adding significant export capacity.

Meanwhile, uranium is gaining traction as a strategic asset. With nuclear energy's role in global decarbonization efforts growing, companies like Uranium Energy Corp. (UEC) are seeing renewed interest. UEC's 2025 stock rally, driven by geopolitical tensions and energy security concerns, highlights the sector's potential as a hedge against trade-driven supply chain disruptions.

ETFs and Options: Diversified Hedging Tools

For investors seeking broad exposure, energy ETFs like the Energy Select Sector SPDR Fund (XLE) and United States Oil Fund (USO) offer diversified, liquid alternatives. XLE tracks energy stocks, providing downside protection through sectoral diversification, while USO offers inverse exposure to hedge against price declines.

Options strategies further enhance risk management. Buying put options on crude-heavy equities (e.g., XOM, CVX) or futures contracts allows investors to lock in prices and limit losses. For example, a protective put on XLE could mitigate portfolio drawdowns during trade war-driven selloffs.

Geopolitical Resilience: Offshore and Canadian Producers

Companies operating in politically stable regions offer additional insulation. Canadian oil sands producers like Suncor Energy benefit from North American energy security policies and less exposure to U.S. tariff volatility. Similarly, Middle Eastern producers such as Saudi Aramco and UAE-based firms remain insulated from Western trade disputes, leveraging OPEC+ discipline to stabilize supply.

The Road Ahead: A Balanced Approach

Investors should prioritize a diversified energy portfolio, combining refiners, LNG producers, uranium firms, and large-cap oil majors. This approach balances growth potential with resilience, ensuring exposure to both traditional and emerging energy assets.

In the face of trade war uncertainties, the key is flexibility. Monitoring geopolitical developments—such as the Israel-Iran conflict or U.S.-China tariff negotiations—will be critical. For now, energy equities and commodities offer a robust hedge against a fragmented global economy, where the only certainty is uncertainty.

By strategically positioning in energy assets, investors can navigate the turbulence of 2025 and beyond, turning volatility into opportunity.