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The global oil market is a $5 trillion industry already, as of 2022. Trading crude oil is one of the most profitable investments as the commodity prices have already increased by over 80% in the last five years. Oil prices are highly volatile which makes it a lucrative investment commodity. In 2014, crude oil traded at $93.17, dropping to $48.66 in 2015, now trading at $107 in 2022.
In this article, we will discuss the important tips that you need to know in order to start trading crude oil.
What is crude oil trading?
Oil trading is the buying and selling of the commodity on an exchange, with an aim to profit from the difference in the prices. Different types of oil and oil-related products can be traded via a Contract for Difference (CFDs), allowing traders to trade oil without owning it.
You can buy a CFD at the oil’s current price in the quantity of your choice and hold onto it for as long as you wish. When you see the oil CFD prices increasing or decreasing, you can sell the CFD at the current price to profit from the buying and selling price difference.
Top tips to trade crude oil effectively
1. Follow the key oil reports
There are two major reports that every oil trader should follow to get a regular update about crude oil’s price movement, any change in the industry, factors affecting the price, changes in the demand and supply, and the overall market volatility. The reports also suggest if the weekly inventory for oil is increasing or decreasing, which helps traders in making oil trading decisions.
- If the weekly oil inventory is increasing, this means that the supply is surpassing demand, which could lead to a drop in oil prices
- If the weekly oil inventory is decreasing, this means that the demand is surpassing demand, which could lead to a rise in oil prices
The two key reports to be followed are:
1. Department of Energy (DoE) Report
The DoE report provides oil CFD traders with important information about oil and its performance in the markets lately. In this report, traders can find information about the oil inventories, supply in the market, drastic changes in the oil industry, and challenges, if any. The report is generated every Wednesday at 10:30 am Eastern Time.
2. American Petroleum Institute (API) Report
The trade association of the US generates the API report, and it expands on the recent inventory levels of crude oil and how it will affect the oil prices. It also provides information about petrol, gasoline, and distillate stocks. The report is released every week at 16:30 pm Eastern Time on Tuesdays.
2. Understand the factors affecting oil price movements
Several demand-side and supply-side factors affect the oil price movement in the market. A negative impact on either side leads to a fall in the oil prices, whereas a positive impact in demand or supply leads to a rise in the oil prices.
Demand-side factors
1. Oil consumers
When trading crude oil, it is important for traders to have a close look at the customer size of oil in the country they are trading in. Countries in America, Asia, and Europe are one of the largest oil consumers, making it a lucrative trade security due to a constant surge in oil demand.
2. Seasonality
Oil is generally used throughout all seasons. However, when we talk specifically about crude oil, its demand increases more in non-winter seasons as there is an increase in activity and crude oil consumption in warm weather. This increases demand for oil, thus increasing its prices in the market.
Supply-side factors
1. Outages and wars
A breaking of war in countries that are major oil producers can stall the supply of crude oil across the globe. This leads to higher demand and lesser supply, resulting in exasperating oil prices.
2. Organisation of the Petroleum Exporting Countries
OPEC is the sole organisation that coordinates petroleum related policies and takes major decisions related to the oil producing members with respect to prices, demand, supply, and more. Any cuts or expansion in oil leads to a change in its price and can affect the oil market negatively or positively, respectively.
3. Focus on the fundamental analysis as well
Fundamental analysis while crude oil trading is as important as technical analysis. This is because crude oil prices are extremely sensitive to wars, geopolitical risks, amendments & regulations, trade agreements, international changes, and similar economic, financial, and political events. Traders must be aware that any seasonal changes can also affect the supply of oil and hence, the prices.
4. Diversify into different crude oils
There are essentially two types of crude oils that you can trade. West Texas Instrument (WTI) is the oil extracted in the US, whereas Brent is extracted from the North Sea. The price of WTI is generally lower than that of Brent because it is mostly traded in the US, and the oil supply there is generally in abundance, so demand hardly ever surpasses supply. On the other hand, Brent is traded internationally and is the benchmark for most European, Asian, African and Middle Eastern crude oil.
Start trading crude oil CFDs today
Crude oil is one of the most popular commodities that can be traded via CFDs. It lowers a trader’s investment risk through diversification. You can start trading oil CFDs through Blueberry Markets and diversify your portfolio.
Sign up for a live trading account or try a risk-free demo account.
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