One of the commodities that is traded the most in the world is crude oil. A raw substance known as “black gold” and “the mother of all commodities,” it is frequently extracted from Middle Eastern nations. Everything from plastics to petroleum, automobiles to cosmetics, textiles to medications is manufactured from crude oil.

With the current surge in volatility, trading in the oil markets can be a risky endeavor. The price of oil fluctuates continuously in areas where supply and demand are not stable. Nonetheless, crude oil has a narrow spread of about 3.0 points on average and is a liquid commodity, allowing large-scale trading. Continue reading to learn how to trade oil.

varieties of crude oil

The qualities of the oil itself and the oil field’s geographic location determine the type of crude oil. Brent and West Texas Intermediate are the two main forms of crude oil that are used as worldwide benchmarks for oil prices, even though there are hundreds of different types of crude oil sold on the global market.

• Brent Crude Oil: Fifteen distinct North Sea oil fields provide the source of Brent oil. Even while it is not as “sweet” or “light” as WTI, it is nevertheless described as a “light and sweet” oil. Brent is the basis for up to two-thirds of all worldwide oil contract trades.

•  WTI Crude Oil: As its name implies, WTI comes from US oil fields, mostly in North Dakota, Texas, and Louisiana. Its low density and low sulfur content earn it the moniker “light sweet crude oil.” Compared to “heavy” or “sour” oils, these qualities make it easier to refine and less expensive to create. The primary benchmark for US oil consumption is WTI.

Why is crude oil a precious resource?

Particularly crude oil is seen as a vital resource in the commodities market since it can be refined into commonplace goods like diesel, gasoline, and other petrochemicals, all of which are in constant demand. It serves as the main energy source for the planet today. The population of the globe today is growing, as is the consumption of food and leisure products. Energy demand increases as a result, placing pressure on supply and demand.

Trading prices for oil

Oil prices are very erratic and greatly impacted by the state of the market, supply, and demand. The following are some of the variables influencing oil trade prices in the UK:

• Natural disasters, war, civil unrest
• Seasonal demand
• Population growth
• Global economic growth
• Shipping availability and freight rates
• Alternative fuel developments, including a demand for renewable energy

 

Spread betting on crude oil

Our most well-liked derivative product spread betting enables traders to profit from changes in oil prices for a variety of commodities, including West Texas and Crude Oil Brent. Since spread betting is a leveraged commodity, opening a position only requires a portion of the entire transaction value as a deposit. Instead of owning the underlying asset, a trader’s role is to speculate on price movements.

Since the commodities market is so volatile, especially in times of economic instability or crisis, it can be dangerous to speculate on crude oil spreads. Before creating a real account, you can trade with virtual money utilizing our spread betting demo account. In the UK, spread betting is a popular product since it lets investors trade thousands of assets, including WTI and Brent crude oil, tax-free.

CFDs for oil

Financial derivatives known as contracts for difference (CFDs) function similarly to spread betting in that they let you start a position on crude oil based on your prediction of the commodity’s price movement. The tax treatment of CFDs and spread betting, however, is where they diverge most. Note that tax treatment may vary or change in a country other than the UK based on specific circumstances.

How to trade futures on crude oil

Trading in crude oil may be most commonly done through futures contracts or forwards. An agreement to purchase or sell a specific quantity of oil at a predetermined price on a future date is known as an oil futures contract. The commodities market frequently uses this kind of contract trading because of the volatility of the price of oil.

Futures prices forecast the price of oil when it expires on a specific date, as opposed to buying it at the spot and storing it until its value rises on the market before selling it again. It is a simpler method of profiting from price changes when you don’t own the underlying asset. Trading oil futures, however, can be dangerous since the prices of the futures are subject to change based on the price of oil, which is determined by a variety of outside factors. Learn more about trading futures.

ETFs for oil

Trading exchange-traded funds (ETFs) is a slightly different way to invest in oil. By owning a variety of underlying assets, in this example shares in oil businesses, exchange-traded funds are a kind of investment vehicle that can provide traders with exposure to the oil market. ETFs that track crude oil are purchased and sold like that of many other stock market shares. The value of the ETF is impacted by changes in the price of oil, which also affects the share prices of oil firms.

Since the price and value of oil are always fluctuating, it can be challenging to trade oil stocks over the long term. For this reason, many traders prefer to employ shorter-term trading tactics, such as day trading. In this manner, the ETF value is mirrored in the daily fluctuations in the price of oil, making it simpler to identify patterns in price charts and graphs and forecast future changes.

An oil exchange-traded fund is a group of shares that may be traded on the market, much like spread betting and CFD trading, but the trader does not own the underlying commodity. It’s critical to keep in mind that leveraged exchange-traded funds (ETFs) are sophisticated financial instruments with substantial risk. Some leveraged ETFs are deemed suitable mainly for seasoned investors.

Trading advice for oil

Several trading methods are more appropriate for the commodities market in addition to the trading product you choose to employ. One well-liked tactic that seeks to profit from short-term price fluctuations is day trading oil. As we’ve seen, the price of oil is subject to frequent fluctuations. Despite this, tiny price movements can still yield profits, as the raw material often has a low spread and a generally stable market.

Because day trading crude oil carries significant risk, it necessitates a high degree of technical analysis and price chart comprehension, much like other trading tactics like news trading and scalping.

Technical and fundamental analysis

Since crude oil is one of the most liquid commodities on the market, it can be exchanged in big quantities and a wealth of data may be examined. To gain a complete understanding of the oil market and be able to forecast future developments, traders must conduct independent research, combining technical and fundamental analysis. This will help to increase understanding of the asset itself as well as provide insight into market movements.

Fundamental analysis, for instance, can be used to assess the worth of oil through news releases about oil trade, firm financial statements, and the overall economic stability of the area you are dealing in. Your trading plan must take into account the impact that news of an oil disaster or production halt, for instance, will have on the price of oil and the corporations who trade it. We refer to this as fundamental analysis.

Technical analysis, which is often the second stage of the process, includes examining price charts, graphs, and technical indicators to derive numerical information. However, since oil can be a very volatile commodity and using a holistic perspective is beneficial, both tactics are necessary while trading the commodity.

How to trade crude oil on the internet

1. Choose between CFDs and spread betting. You can begin trading oil right away by opening a real account. Alternatively, you may open a demo account and begin training with £10,000 in virtual funds.

2. Get acquainted with our platform. A wide variety of technical indicators, such as stochastic oscillators, Bollinger Bands, and the simple moving average (SMA), are available in our highly regarded software.

3. Pick the asset that you like best. Brent and West Texas Intermediate (WTI) are the two most traded varieties of crude oil.

4. Examine the oil industry. Recall that the commodities market is prone to extreme volatility, particularly during periods of tumultuous political or economic situations. We counsel our customers to stay informed about news and economic developments so they can react quickly to shifts in the market that could impact their positions.

5. Create a comprehensive and successful trading plan. There are other ways to execute orders, and stop-loss orders in particular can assist minimize losses during periods of extreme market volatility.

Index of oil commodities

You can trade CFDs or place spread bets on our commodity baskets, which include our Energy Index, with CMC Markets. You can invest in a variety of commodities within the same sector by trading commodity indices, such as gasoline, low sulfur gasoline, natural gas, heating oil, and crude oil Brent and West Texas. This can assist in diversifying your trading portfolio and increase your exposure to the commodities market.

A platform for selling crude oil

Check out Next Generation, our crude oil trading platform. We give holders of live accounts access to special services like trading forums and limitless technical analysis tools. Our share basket products can be traded using a demo account, but a live account gives you access to trading stocks on many other oil firms, including Royal Dutch Shell, BP, Chevron, and ExxonMobil. Now create a real account.