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Making Money Trading Oil: A Slippery Investment or Black Gold?

Commodities / Crude Oil Oct 24, 2019 - 07:40 AM GMT

By: Boris_Dzhingarov


The oil markets rank among the most volatile commodity markets in the world, thanks in large part to the myriad factors that determine oil prices. Geopolitical concerns, the actions of speculators, regional tensions, demand and supply considerations, alternative technologies, and many interrelated factors determine oil prices. For example, the Iranian attack on Saudi Arabian oil fields was a major setback for regional security and the oil market was rocked in the process.

One can never discount the specter of war between arch foes Israel and Iran, and how this may impact the oil markets. The US decision to withdraw troops from Syria has facilitatedthe infiltration and incursion of Turkish forces into Kurdish territory, with concomitant effects on the balance of power which in turn impacts price stability in the oil market. The convoluted nature of the oil markets is further destabilized by the testy relationship between the US and Iran.

Trading the Oil Markets with a Trusted Broker
Traders and investors are not deterred by the violent paroxysms in the crude oil markets; in fact, this volatility is the strongest possible driver of interest in this commodity. The actions of traders play a big part in the price of crude oil, particularly day traders who are interested in generating profits from slight changes in the price of crude oil. The nature of crude oil markets is such that it doesn't matter whether the price rises or falls – profits can be generated in either direction.

With speculative activity, traders are not required to physically move barrels of crude oil from buyer to seller or vice versa; contracts are traded electronically and profits/losses accrue as a result. Futures contracts serve as the most popular way to trade crude oil. These contracts set a fixed price and date for the sale of crude oil and the profit/loss that is generated is determined by the difference between the buy and sell prices.

With day traders, things are different. Profits and losses are determined at the close of trade each day. There are two major exchanges where oil is traded: The International Petroleum Exchange (London, UK), and the CME Group NYMEX (New York, New York). The OPEC basket is an aggregate pricing mechanism for oil exports from the Organisation of Petroleum Exporting Countries. Foremost among them is Saudi Arabia. After the attack on the Saudi Arabian oil fields, prices spiked with concerns about how global demand would be met. With Iran out of the equation, the focus shifts to other OPEC countries and WTI producers.

Other Options for Trading & Investing in Oil

Oil contracts typically encompass WTI crude oil at 1000 barrels of crude and E-Mini Crude Oil Futures with 500 barrels of crude. Oil prices usually move in one penny increments with standard lots and 2.5 cents on the E-Mini oil contracts. With regards to margin and trading figures, amounts will vary between commodity brokers. If you trade oil at Plus500 for example, the requirement is simply to buy or sell crude oil with a CFD.

A CFD is a contract for difference; a derivative trading instrument. This high-risk option has the potential for profit or loss, like all trading activities, but there are no commissions on oil trades at this broker. Trader sentiment typically cycles rapidly between buy and sell, depending on macroeconomic, geopolitical, and speculative sentiment. While oil is typically traded for short periods of time, it is entirely possible to invest in this financial instrument for the long haul.

Traders routinely make use of economic reports to assist in buy & sell decisions with crude oil. These reports include the EIA Gasoline Stocks, EIA Crude Oil Stocks, EIA Weekly Petroleum Status Report, EIA Distillate Stocks, Refinery Usage, and Total Products Supplied, Net Change et al. The data is used to gauge supply and demand, and how this will likely impact WTI and Brent crude oil pricing.

From a rudimentary perspective, a surge in inventory levels has a downward effect on prices, while a reduction in oil stockpiles indicates a spike in oil demand which invariably raises prices. Oil CFDs rank among the most popular options for traders, given their simplicity. Low capital requirements are usually needed to get started, and since there are competitive spreads and no commissions, this regulated market is accessible to traders across the board, 23 hours a day, 5 days a week. Profits can be generated in both directions – buying and selling, whether prices are rising or falling.

By Boris Dzhingarov

© 2019 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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