Trading crude oil offers excellent opportunities to profit in nearly all market conditions due to its unique standing within the world’s economic and political systems.
Crude oil has often been described around the world over as black gold and rightly so. Crude oil is the most volatile and consequential to everyday trade amongst all the commodities like precious metals, Agri commodities, base metals, etc.,
Trading crude oil on commodity exchanges is the engine that drives economic growth across developing as well as developed nations.
Trading with the right platform is also an important aspect of making profits. I recommend using oil profit for your trades, it guarantees complete peace of mind and detailed information needed to make the right trades.
What is Oil Trading?
Oil trading is the buying and selling of different types of oil and oil-linked assets to make a profit. As oil is a finite resource, its price can see massive fluctuations due to supply and demand changes. This volatility makes it extremely popular among traders.
On the stock market front, it is the volatility in prices, the liquidity of crude as a commodity, and the various other factors that contribute to the fluctuations, which then impact the price.
There are Three Ways You Can Trade Oil:
1. Oil Spot Price
Oil spot prices represent the cost of buying or selling oil immediately, or ‘on the spot’ – instead of at a set date in the future. While futures prices reflect how much the markets believe oil will be worth when the future expires, spot prices show how much it is worth right now.
2. Oil Futures
Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices
3. Oil Options
An oil option is similar to a futures contract but there’s no obligation to trade if you don’t want to. They give you the right to buy or sell an amount of oil at a set price on set expiry date, but you are not obligated to execute your option.
There are two types of options: calls and puts. You buy a call option if the market price of oil is going to rise, but if it is to fall, you buy a put option.
It is essential to understand these factors to know what to expect from trading a commodity like crude oil and make money from it.
Let’s delve into the 7 simple steps to make a profit from trading crude oil:
1. Crude Oil Market Research
The first step is to study the crude oil market. Generally, markets move via demand and supply; this also applies to crude oil. Rising demand makes crude oil prices higher. Analyzing the market trends before making any move keeps you a step ahead.
2. Adequate Understanding of Supply and Demand.
Traders need to understand the supply and demands of the market if they hope to make the most profit.
Production of oil at crude facilities, and demand for the oil, are heavily dependent on the global economic output, and the ability of countries to purchase higher quantities. When oil is oversupplied, the demand usually falls, resulting in the closure of production facilities, and the sale of oil barrels for a much lower price. On the other hand, stable production trends allow for higher price bidding. Traders need to keep track of these developments at all times.
3. Having a Trading Strategy in Place
Traders should have a strategy in place that is not just driven by emotions. This is important because，there are experts whose job is to read the geopolitical scenarios taking place in the world daily, and applying the result to crude prices and trades.
In such a scenario, a good strategy could be to employ the assistance of portfolio managers and market advisors, as they will help you in understanding the crude oil system.
Additionally, attempts need to be made on the part of traders in understanding the consequences of global socio-economic and political trends. For instance, if oil-producing nations are sparring， it could lead to a massive rise in prices or excessive supply of oil barrels respectively.
4. Know the Difference Between WTI and Brent
Trading oil constitutes two primary markets： West Texas Intermediate and Brent. WTI comes from the Permian Basin in the U.S., while Brent Crude is sourced from the North Atlantic Ocean.
As a trader, if you’re interested to place your bets on both options, it is necessary to know their performances.
5. Relying on the Trends of Institutional Investors
Be it in the UK or other countries, trade for crude range heavily in hundreds of barrels. The idea is to essentially use it as a hedging strategy against price fluctuations or increases in the future.
When the price rises, oil companies can meet the energy requirements of their respective populations, without having to shell out extra money when the prices increase. Hence， by observing hedging strategies, traders could also understand the trends in the market.
Institutions also pool in resources to make their discoveries both on and off-shore. Being vigilant about global scenarios can always serve investors well, and if coupled with expert advice, investors will rake in returns from the energy markets.
6. Using Social Media to Trade Crude Oil
Through the years, social media has become an increasingly useful platform to share ideas, pass on information, and receive breaking news. This is the case for oil traders using #OOTT, which stands for the Organisation of Oil Traders on Twitter. Here traders and industry leaders provide breaking news and key reports related to the oil market. As a trader，having the right information is essential to make profits.
7. Keeping Track of the Economic Situations of Crude Importing Nations
China and India are some of the largest importers and consumers of crude oil in the world. A fall in their domestic economy can affect the price of crude due to a fall in demand and excess supply. Similarly, economic prosperity leads to higher consumption, influencing higher auto sales, industrial use of crude, and logistics and supply chain industries.
Therefore, traders must keep track of domestic developments of crude importing nations, to understand how that influences the global energy markets.