Oil trading is the business of buying and selling oil to generate a profit. There are a variety of ways to partake in oil trading, including buying the physical product and speculating on how the price of oil is going to change (also called futures). The best way to get into the oil trade is to trade oil online.
Oil is one of the world’s most important energy sources and is a beacon of modern society. It has contributed historically to over a third of global energy consumption. Oil is globally a massive industry that is used to supply power, heat homes, and fuel our vehicles as well as being a major component in plastic and hundreds of other materials that make up the bulk of our possessions.
The process of locating, extracting, transporting, and refining crude oil is a lengthy process and requires a large existing infrastructure to support the process. This infrastructure is in the form of thousands of miles of oil lines across countries and continents, as well as multiple refineries and storage facilities. The global oil industry has become a multi-trillion-dollar industry.
Oil is particularly important to fuel-based businesses, such as airlines, plastic producers and agricultural businesses. This makes crude oil a major import and export in a number of countries worldwide. This in turn means that there is a vast financial trading market surrounding oil, including futures, forwards and options.
Oil trading is extremely popular due to its finite nature, meaning that supply and demand are changing all the time, resulting in an extremely volatile price. This erratic nature is very appealing to traders, who can learn the market and use their knowledge to buy low and sell high, making a lot of profit in the process.
No matter the market conditions, crude oil trading can be a great opportunity for traders to generate profit given its place within global economic and political systems. Crude oil is one of the most traded commodities on the planet and holds an influence over the price of many other commodities, such as natural gas and gasoline. Crude oil prices can also impact the prices of stocks, bonds and currencies globally. Even with the increase of interest and investment in renewable energy, oil is one of the main sources of energy, and so remains an extremely sought-after commodity.
For traders with a lot of experience in the industry, particularly with oil trading, one of the most lucrative moves is to begin trading on futures contracts. Given the volatile nature of oil prices, there is a market for solid trading opportunities, so whether you’re focusing more on day trading futures or longer-term trading, investing in futures contracts can be a great way to get ahead of the game.
So how do I get into trading crude oil?
There are a few steps to get yourself ready to make a mark in the oil trading business:
1. Learn about supply and demand
Supply and demand of crude oil are influenced by a variety of factors, including global output and economic change. Depending on how the market is heading will greatly influence the way traders buy and sell crude oil, as sideways trends often last years at a time.
2. Understand the market
Understand that energy futures markets are increasingly dominated by professional traders, whereas retail traders and investors have a lot less influence on this market. Retail becomes quickly more influential when sharp trends occur, and this can contribute to huge climaxes and collapses.
3. Choose your oil type carefully
There are two primary markets for crude oil trades; the West Texas Intermediate Crude and Brent Crude. The differences here are associated with both the place of origin of the oil as well as the sulfur content and API gravity, greatly affecting the type of oil and its associated uses.
Pricing can vary much more nowadays than it has in the past, due to production methods and stock supply.
4. Do some long-term research
Before investing all your money, do some research! The crude oil market is volatile, and can massively change in price throughout the years. Since World War II, when crude oil prices were peaking at around $20, prices have risen and dropped substantially, peaking at $157.73 in 1999. It has since settled to around $47 in Jan 2021, but research trends and patterns and stay informed.
5. Choose your trading location
Work out which trading venue you’re going to go through, and which will work best for you. Each venue will have its own risks and vulnerabilities associated, so do some research to find a trusted venue.
The Bottom Line
Trading in crude oil is an extremely lucrative market, however, it requires high levels of skill and research. Take time to learn the market properly, especially if crude oil futures is an area of interest. Look into supply and demand, market trends, and oil types and do some long-term market research to keep you and your assets safe and set yourself up to make a strong profit from the world of oil trading.