Things To Follow When Trading Crude Oil

Things To Follow When Trading Crude Oil13.05.2015


Forex brokers are going beyond trading pairs. You have a host of different options when it comes to investing your money. The old “eggs in one basket” saying that applies to diversifying your investments has never been easier. You can make certain your money is in more pots, while still leading to sound investments and the money making you want. Using the same platform with the same leverage and margins of currency pairs, you also have access to CFDs, ETFs, commodities, stocks and more. Included in these offerings are your ability to trade on crude oil price changes.

Why Trade Crude

Before you can examine important points about crude oil trading, you have to know why you would trade it. Crude oil is one of the hottest commodities because it is used on a daily basis. As an asset for Vanilla options through CBOT you can trade it over the counter (OTC) or through no dealing desks (NDD) through your broker to earn a return on your investment.

There are two types of oil based on the stage it is refined to. Light or sweet crude oils are more refined with less impurities including lower sulphur content and a lower density, which makes it lighter. For this reason it can be a pricey option versus heavy or sour crude oils which are not as refined. Given the fact that this is such a sought after commodity that has frequent price changes there is a lot of money to be made by predicting the market and investing wisely.

You can leverage up to 200:1 with a .05 point spread from certain forex brokers. Since crude oil is traded through no dealing desk brokers this also means you can pick the best price to buy in at and sell with a nice return on your investment.

As you see the prices change at the gas stations, you could also be seeing your investment portfolio grow. There are several ways to trade crude oil including going short when you think the price is going to decrease and buying in when you think it will increase. Many focus their time on US Oil and UK Oil as those are the two of higher quality, but there are just as many small companies out there you could make money on.

Like any investment stock, currency or commodity it does take time to understand when to trade. This is where the following about what to follow to make better trades comes into play.

Forex and Crude Oil

The Foreign Currency Exchange is a no dealing desk trading system with some over the counter options. It has an interbank that deals directly with the trading on the market, which is different than how stocks trade. There are actually quite a few similarities when it comes to forex and crude oil particularly in what reports to follow.

Supply and demand is paramount to oil prices. When there is a high supply of oil at the pumps the prices are lower. When there is demand the prices increase; however, other factors can play a part such as oil inventories and production. For this reason information from the Organization of Petroleum Exporting Countries or OPEC and Organization of Economic Cooperation and Development or OECD are released you need to pay attention. OPEC accounts for about 40% of production while OECD has about 50% of the demand.

When production is exceeding demand then inventories build thus making excess supply. When production is not meeting demand than supply is low. As a trader you have to look at the reports to determine consumer demand for crude oil. You also need to examine the strength and weakness of global economies, the GDP, retail sales, and consumer spending. This will help you read the market sentiment to determine the price of oil.

You are investing on the change in oil price not what the price might become next. So it is not a gamble, but it does take some pretty savvy understanding of the various reports. If you already understand the reports mentioned like GDP and retail sales because you trade forex then it will make it easier for you to start trading in commodities like crude oil. The reports are the same, but what they show can mean extremely different things based on the type of trade you are looking to make.

Major Players

There are some major players in the market that can affect prices. Already OPEC and OECD have been examined as major players for production and demand. However, it also needs to be noted that governments have an impact on the amount of oil made available. Oil reserves exist and these reserves can be low or over full. Sometimes they are just perfect for what the government assumes as probable demand for coming years. Since oil can be limited in terms of finding it, getting it, and then producing the refined oil used for fuel the reserves are kept to ensure that in five to 20 years the world will not be out of oil for running automobiles and other mechanical equipment.

Governments can withhold oil in reserves due to low production. This means the demand is high, but the government wishes to lower the demand. When this occurs the prices will rise, thus driving, flying and other oil using options are lowered in their usage in order to save money to live on. This in turn directly affects the price per barrel of crude oil.

To ensure reserves are kept filled countries can continue to import oil from those mining it, but will keep it locked in the reserves. So the price due to demand per barrel can be up over worries of a low production or low supply of the commodity.

As you can see there are some intricacies to crude oil investing. There are main players that will affect the prices, but it could be money time for you as you read the market sentiments to see how high or low prices will be going. 

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