Crude oil trading is a great source of profit opportunity for many traders. It has a unique economic standing in the world’s economic and political systems. You need to pay attention to these things if you want to earn from crude oil trading.
Drivers of Crude Oil
Crude oil moves through the different movements of supply and demand, influenced by worldwide output as well as the global economic prosperity. Oversupply and diminishing supply can push traders to sell crude oil markets to lower ground while rising demand and diminishing or flat production encourage traders to bid crude oil to higher levels.
Tight convergences between positive elements can result to powerful uptrends. Meanwhile, tight convergences between negative elements can result to an equally powerful downtrend. Price action usually builds narrow trading ranges when crude oil is affected by mixed conditions, with sideways action typically persisting for years at a time.
Understanding the Crowd
The energy futures market is dominated by professional traders and hedgers. Industry players take positions to offset physical exposure while hedge funds speculate on long term and short term direction. Retail traders and investors give less influence than in more emotional markets such as precious metals or high beta growth stocks.
Retail’s impact increases when crude oil trends steeply, appealing to capital from small players who are drawn into these markets by front-page headline. The resulting waves of emotions like greed and fear can boost the underlying trend momentum, paving the way for historic climaxes and collapses that print exceptionally high volume.
Brent and WTI Crude Oil
There are two primary markets through which crude oil trades, namely, West Texas Intermediate and Brent.
The WTI originates in the US Permian Basin and other local sources. On the other hand, Brent comes from more than a dozen fields in the North Atlantic. These varieties contain different sulfur content and API gravity, with lower WTI levels commonly referred to as light sweet crude oil.
Brent is considered to be the better indicator of the two in terms of worldwide pricing in recent years, with the exception of 2017, when WTI was more heavily traded in the world futures markets.
Many of the CME Group’s New York Mercantile Exchange (NYMEX) futures contracts follow the WTI benchmark. The “CL” ticker fetches significant daily volume. Most futures traders can focus on this contract and its many derivatives.
Exchange traded funds and exchange traded notes provide equity access to crude oil. On the other hand, because of events called ‘contango’ and ‘backwardation,’ their mathematical constructions are subject to significant limitations.
WTI crude oil climbed up after the Second World War, reaching its peak in the upper $20s and entering a narrow band until the embargo in the 1970s sparked a parabolic rally to $120. It peaked late during the decade and started a torturous decline, slipping into the teens ahead of the new millennium.
Crude oil entered a new and powerful uptrend in the year 1999, jumping to an all-time high at $157.73 in June 2008. It then dropped into a massive trading range between that level and higher than $20s, trading around $55 at the end of 2017.