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How To Trade Crude Oil
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Crude oil is one of the most traded assets in commodity markets. Its immense popularity is credited to its importance as a major raw material. Not only is it used to produce energy resources, but it powers modern transportation mediums. Keeping this in mind, it would be a good idea to find out everything there is to know about crude oil as it continues to play an important part in commodity markets. If you are new to commodity markets, here is what you need to keep in mind before trading crude oil.
Fluctuations in Price and How it Affects Trade – Supply and Demand
A change in the price of raw materials has a severe impact on the prices of goods and services. It can be something as simple as a change in transportation costs which in turn affects overall economic activity. But that is not all as it also affects major producing countries, given that crude oil is a major export. Canada is one such country that is a major exporter of crude oil and energy. It is safe to say that it has a strong correlation between the Canadian dollar and crude oil prices.
Even though the common fractions of crude oil include jet fuel, kerosene, petrol and diesel, they are not considered to be the byproducts of crude oil. Crude oil is in fact required for the production of alkenes that is used to manufacture other essential compounds like asphalt, lubricants, wax and plastics.
Crude oil holds a relatively stable value in comparison to the other commodities available on the market. The constant rate of global demand and production ensures it remains the same. However, there are instances where wide and swift fluctuations are observed particularly due to geopolitical tensions in major oil producing countries.
One of the best ways of approaching crude oil in commodity markets is by doing your homework. This means you will have to rely on technical and fundamental analysis in order to determine effective entry and exit points for any trades you plan to make. Additionally, you will have to be on the lookout for primary contributing factors like:
1. Economic data of major oil producing countries. Such data can play a vital role in pointing out deceleration and acceleration in economic activity which could affect overall demand, especially in countries like Europe, China and the U.S
2. Monthly EIA/IEA market reports
3. North Sea, OPEC and Russian production
4. Weekly U.S inventories report which are due on Wednesday at 14:30 GMT
Investors only bet on crude oil after checking the inventories report, which is primarily released by the US Department of Energy. These reports state the number of crude oil barrels being held by firms in the US. The reports also detail the changes in demand-supply balance thus causing the prices to fluctuate. However, your sole analysis simply cannot rely on government reports, but in fact will depend on a combination of different statistics and information that you need to gather over time in order to make an accurate prediction.
Keeping these factors in mind, you should now have a better understanding of how crude oil needs to be traded in commodity markets. Your assessments and predictions will primarily depend on your research and study of economic data including macroeconomic events. But if it is your first time trading crude oil in commodity markets, it would be wise to seek further guidance from a professional in order to yield effective results.
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