Trade oil: Black Gold Weaves Its Magic Still!

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crude oil

Since crude oil trading gives superlative opportunities to you so that you benefit in all market conditions, there’s all the more reason you should be attentive to energy sector volatility. A recent phenomenon, the latter has guaranteed stable trends causing regular returns. As a result, all manner of traders stand to gain, be they inclined to short term swing trades or long term timing strategies.  

Market participants frequently fall short of taking maximum advantage of crude oil fluctuations. The reasons may include their being unable to understand the true character of these markets or because they are in the dark regarding the pitfalls that may earn into earnings. Additionally, only a fraction of these energy-intensive securities is likely to yield positive results. 

Defining oil trading 

Oil trading concerns itself with the purchasing and selling of various types of oil and oil-related assets, all aiming at profitability. Oil being a limited resource, the price can undergo massive fluctuations owing to varying supply and demand. 

The trader may use CFDs to trade on oil’s spot price, or options contracts, or oil futures prices. You do not have to be in actual possession of said oil. 

Ways to trade oil 

The oil spot price 

Oil spot prices stand for the direct buying/selling cost, or ‘on the spot’, instead of a fixed future date. Thus, whereas futures prices show the degree to which the market holds oil to be worth upon future expiry, spot prices are pointers to its worth at this moment. 

Defining oil futures 

Oil futures are contracts, reflecting your consent to exchanging an oil amount at a certain price on a specific date. Exchange-traded, they reflect various oil types’ demand. A well-worn method of buying/selling oil, oil futures permit the trading of rising/selling prices. 

Companies use futures to lock in beneficial oil prices and hedge against harmful; price movements. There being no stipulation regarding compulsory possession of the physical oil, speculators set great store by futures. Cash settlements underscore contract fulfilment. 

Futures standing for standard global oil prices, besides standard economic health, traded on the ICE or Intercontinental Exchange and NYMEX or the New York Mercantile Exchange, are Brent Crude and West Texas Intermediate (WTI). 

Defining oil options 

An oil option is akin to a futures contract. However, you don’t need to trade. You are under no obligation to exercise your option, but you do have the right to buy/sell an oil amount at a fixed price on a predetermined date. 

Oil price movement 

The supply-demand dynamics basically move oil price. Oil price surges when there’s supply outstripping demand. Oil prices plummet when demand plunges upon a supply flooded market obtained. 

Affective factors impinging upon oil supply/demand, and by extension , oil price movement: OPEC, Global Economic Performance, Oil Storage, scouting for alternative energy resources. 

OPEC 

The Organisation of Petroleum Exporting Countries or OPEC by and extensive controls the essential levers of the supply-demand dynamics impacting global oil prices. They set production levels, and OPEC members continually tweak variables, thus determining the market as much as they react to the same. Russia is now a strong enough oil exporter to upset OPEC policies. As such, Russian oil producers are also deemed to have predictive value. 

Global Economic Performance

Oil traders must study economic data to make sense of the overall economic situation and the whys and wherefores of oil price movements. Recessions and growth both have their sets of variables. Moreover, oil producers affect whole processes by determining how much they should cut or add to prevailing production.

Oil Storage

There’s only so much space available to store oil. Oil storage comes with a massive price tag, and if there’s an oil surplus resing in tanks, that catalyses oil price movements. In conjunction with conditions obtained during the early Pandemic period, oil prices were negative for the first time ever. 

scouting for alternative energy resources 

The Green Movement globally has gained impetus like never before, with measurable climate change events putting lives and property at hazard in diverse locations across the developed world. Climate change is now atopic that’ become a given for any meaningful political-economic debate. This scenario will lend further impetus to the development of alternative energy resources. Wind and solar power are already in fairly advanced stages. Oil producers, therefore, feel themselves under no small degree of pressure. 

How to trade crude oil – reprise

Spot price oil trading

Oil spot prices with a good broker are contingent upon the two nearest futures on the market under consideration. There would be continuous pricing and no fixed expiries. Taking shorter-term positions and a more prolonged time frame technical analysis ; 

Futures oil trading  

Trading oil futures, you trade CFDs on the underlying price. It follows that you will not be entering the contract. However, you’d be determining if the contact will become valuable in varying degrees prior to expiration ; 

Options oil trading 

Trading US crude oil options, CFDs would enable your oil options price trading. In addition, options help you rein in leverage since you would not be losing in excess of your starting outlay. 

When doing oil markets open? 

The most appropriate time of day to trade oil is when there’s the most activity in the market. Given the high volatility of the oil market, there’s the chance of such activity quite frequently. As a rule, there’s a lot of activity upon underlying exchanges first opening and on the last half hour or thereabouts prior to closing. 

For instance, were you considering trading WTI, you’d need to consider NYMEX or New York Mercantile Exchange, which would translate to 1 pm and 6:30 pm.  

crude oil investment

Oil the asset 

Oil And gas investors seek out particular economic indicators to make sense of movements in the industry.  

Direct investment in oil 

Oil futures/oil options purchases are surefire ways of direct ownership of this resource. Futures are sensitive to volatility. Futures investing asks a good deal on your part since you will have a more than coherent risk management policy in place, in addition to considerable capital investment.

You can have direct oil possession through oil ETFs or Exchange Traded Funds. The fund aims to give daily investment outcomes coterminous with the WTI spot price daily percentage changes. 

Indirect investment in oil 

You can access indirect exposure to oil thru energy-sector ETFs purchases and to energy sector mutual funds. These instruments invest just in oil stocks. Thus, the attendant risk is lower. 

Oil trading strategies 

Oil trading indeed involves the generous use of technical indicators in much the same vein as in the equities and commodities markets. Unsurprisingly, the list includes moving averages, moving average convergence divergence, relative strength index, true average range; stochastics; pivot points; Bollinger bands. 

Long straddle 

Some strategies may involve trading oil price volatility. When current volatility per Cboe crude oil ET Volatility Index is in excess of historical volatility, then there’s no forecast of the volatility relenting. There’s an uptick instability when volatility is lower than the price. 

One profitable strategy that harnesses volatility is the long straddle, concerning itself with buying both a call and put option at the identical strike price. Consequently, profit attends the traders regardless of price movement. 

Bear call spread strategy and bull call spread strategy

The bear call spread strategy is concerned with selling an out of the money call or put and purchasing another out of the money call/put. On the other hand, the bull call spread strategy is concerned with purchasing an out of money call/put and selling another. Thus, the two calls/put options strike difference is what gives the traders profit. 

Conclusion 

For our budding crude oil trader, ‘how to trade crude oil’ is a question readily answered. Crude oil investing has similarly encouraging answers. On NYMEX, crude oil trades as crude oil futures contracts. Oil options signify yet another way you, as an oil trader, may purchase oil. Options contracts provide the buyer/seller with the choice to trade the oil at a set time in the future. If you go to purchase futures/options directly in oil, you’d best be advised to trade them on commodities exchange. An easier way of accessing this market is by purchasing shares in an oil ETF. Indirect exposure through owning oil companies’ shares is also a good acclimatisation method. 

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