Due to its position within the global economic and political systems, crude oil trading can generate significant profits in almost all market conditions. Additionally, the volatility of the oil industry has increased significantly in recent years, ensuring solid trends that can deliver reliable profits for both long-term timing methods and short-term swing trades. You will need the key that can only be obtained from Oil Profit to participate in the global crude oil economy.
Because they have not learned the specifics of these markets or are not aware of the hidden hazards that might eat into profits, market participants frequently fall short of maximizing the benefits of variations in crude oil prices. Additionally, not all financial instruments emphasizing the energy sector are the same. A subset of these assets is more likely to have favorable outcomes. The following steps should help you start trading oil.
- Understand How Crude Oil Moves
Crude oil is subject to perceptions of supply and demand, mainly under the influence of global output and economic situations. While rising demand and dropping or flat production encourage traders to bid crude oil higher, an abundance of supply and declining demand drive traders to sell crude oil in markets.
The rise of crude oil to $145.31 per barrel in July 2008 resulted from tight convergence between positive elements. Conversely, the fall of crude oil to $37.75 per barrel in August 2015 resulted from close conjunction between negative variables. When crude oil reacts to mixed conditions, price action often develops narrow trading ranges, with sideways activity frequently lasting for years.
- Recognize the Crowd
Energy futures markets are dominated by professional traders and hedgers, with market participants taking positions to counter physical risk and hedge funds speculating on long- and short-term direction. Compared to markets like precious metals or high beta growth stocks, which are more dynamic, retail traders and investors have less effect in this market.
When crude oil prices climb sharply, retail gains power and draw capital from smaller players attracted to these markets by front-page headlines and table-pounding talking heads. The subsequent waves of fear and greed can amplify underlying trend momentum, leading to historically powerful climaxes and collapses that print large volumes.
- Choose WTI Crude Oil versus Brent Crude Oil
West Texas Intermediate Crude and Brent Crude are the leading marketplaces where people trade crude oil. While Brent comes from several fields in the North Atlantic, WTI production happens in the U.S. Permian Basin and other regional sources. Different sulfur contents and API gravities are present in these variations, with lesser concentrations called light sweet crude oil. Although people actively traded WTI more in the global futures markets in 2017, Brent has improved in recent years as a gauge of international pricing (after two years of Brent volume leadership).
Stable pricing between the grades ended in 2010 after the two markets drastically diverged due to a quickly shifting supply versus demand. WTI output grew due to the rise in U.S. oil production, fueled by shale and fracking technologies, whereas Brent drilling experienced a sharp decline.
This split was made worse by a U.S. statute that dates back to the Arab oil embargo of the 1970s and forbids domestic oil businesses from selling their stock in foreign markets. Authorities lifted this prohibition in 2015.
Parting Shot
To generate regular returns, traders in the crude oil and energy sectors need to possess unique skill sets. Trading crude oil futures and its multiple derivatives require market participants to understand the factors that affect the commodity, the makeup of the crowd, the long-term price trend, and the physical differences between different grades.
