Oil Trading

Trade Crude Oil

Crude oil has been one of the most popular assets in the commodities market for many years. Is it the right focus for you, though? We are here to help you determine if oil trading can be beneficial to your portfolio or not.

A few interesting facts about Oil Trading

Although it’s called ‘Oil Trading’ colloquially, oil trading covers far more than you might think. Remember that crude oil is at the heart of anything that has a combustion engine – petrol, oil, diesel, even paraffin demand can have an impact on this market. Although it may seem intimidating at first, it’s quite the contrary. There are very good indicators that can provide insight into the future direction of the oil markets in the near term.

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We at CMTrading believe that oil trading can offer your portfolio a lot of advantages. These include:

  • Oil is in a constant demand in today’s market.
  • The transportation and automotive industry have an ever-growing demand for oil.
  • Oil is easy to produce and refine, while alternative energy sources haven’t reached that level of efficiency yet.
  • Oil production is fairly vulnerable to supply shocks and geopolitical conflicts and the volatility can translate to higher profit potential.
  • Oil is a highly competitive and liquid market with high intraday volume.

Understanding the Oil Market

Although it may seem a bit intimidating at first, it’s actually very easy to understand how to leverage oil trades to your advantage. There are a few key principles a lot of traders swear by: Firstly, know your two benchmarks; Brent Crude and WTI (West Texas Intermediate) oil are two major benchmarks that are traded on the financial markets. Brent Crude refers to the price for European, African and Middle Eastern oil while WTI represents the price for oil in North America. 

Don’t discount politics. Typically, you need to consider Europe, Russia, the US and the OPEC countries (the Middle East and South America) and China is a rising player. Consider global and domestic production if you’re in an oil producing country. Remember drilling for oil is expensive and that’s why they keep trying new techniques. Demand is what drives the production and consequently the price. These are the driving factors around oil prices and familiarizing yourself with these aspects can help you identify potential opportunities in the oil markets! 

Always keep on top of the news to know how these different factors are playing off of each other. Global demand for oil may be rising, while domestic demand is falling. OPEC could be withholding supplies. Fracking sites could be opening. All of these will affect the oil market. Past that, some time spent with historical market figures (while never be indicative of future performance) will be all you need to understand the basics of the oil market and its quirks. Oil trading can be particularly rewarding for traders, especially if you can take advantage of CMTrading’s award-winning platform. 

Who’s producing oil  

Countries with oil reserves can generate huge amounts of revenue and it’s closely tied to those nations’ GDP. Unsurprisingly, events such as unrest in oil-producing regions, new oil field discoveries, and advances in extraction technology profoundly disrupt the industry.  

The top 5 oil-producing nations are USA, Saudi Arabia, Russia, Canada and China. The United States is the top oil-producing country in the world, with an average of 17.87 million b/d, which accounts for 18% of the world’s production.  

Refining to fuel – Different types of oil products  

 Overall, oil is a generic term that refers to a variety of different products. Crude oil is oil in its most natural form as extracted from the ground. These products go through a lot of complex processing to create finished products that we use in our day-to-day lives, such as petrol, diesel and fuel oil.  

 Other products are used in the petrochemicals industries, primarily turned in plastics.  

Supply chain disruptors  

The Organization of Petroleum Exporting Countries (OPEC) governs its oil-producing member nations, working together to regulate prices and production. OPEC’s decisions are watched closely by governments, oil companies, traders and consumers.  

Some of the world’s top oil-producing nations are politically unstable and some have even faced sanctions by the United Nations.  

Supply disruptions triggered by political events have caused major oil price hikes. From the Ukraine/Russia war to the Arab oil embargo, geopolitical events can cause immense disruptions.  

 Another factor affecting most commodities are weather condition. Adverse weather conditions can hamper the supply of crude oil.  

Upstream and downstream – a multi-stage process  

There are two stages to the oil supply-chain; the upstream and the downstream phase.   

Upstream involves the search for fields and physically extracting the raw oil from the ground whether onshore or offshore. Experts will analyze an area for possible deposits, using technology such as seismic imaging and 3D mapping. If a potential dig site is discovered, wells are drilled to appraise the scale and value of the deposit. The oil is then squeezed out by natural underground pressure and then pumped via gas and water injection. Once extracted it will head to a refinery to begin the downstream phase of the process.   

Crude oil is refined and processed into useful products and then either sold to a vendor or directly to consumers.  

Moving millions of barrels – logistics are key 

Physical crude oil is predominantly moved around by oil tankers that can carry more than 1-million barrels. Refined products are moved in much smaller vessels (about 30-40 000 tons).  

Tankers also play an important role in providing arbitrage opportunities for traders – this is where an asset is bought at a low price to be sold for much higher later on. 

Why trade commodities with CMTrading 

CMTrading provides clients with access to a wide range of tradable commodities with 50:1 leverage ratio (with the exception of gold and silver which offer 100:1). 

 You can trade the following commodities with CM Trading: 

  • Gold, silver, platinum, copper and palladium 
  • Corn, wheat, coffee and sugar 
  • Gas, Crude and Brent oil 

We offer superior trading conditions available exclusively to CMTrading clients and we also provide comprehensive trading education for traders of all skill levels through weekly online webinars and workshops. 

Each client receives a customized education package with learning resources covering the fundamentals of trading the markets as well as advanced tips and techniques. 

For further information and guidance, clients can get to bear with their Trading Specialist to receive daily updates on the foremost favorable assets of the day and discuss risk appetite and profit targets. 

 Simply click the button below to open your account and we’ll facilitate your start within the exciting world of commodity trading today.