Oil: How to Trade One of the Most Volatile Commodities
Education - Milan Cutkovic | 17 Feb 2020
How can I trade Oil?
Oil is one of the most popular trading instruments, both for short-term and long-term traders, and the Oil futures contracts traded on the CME exchange are amongst the most liquid one´s in the commodities space.
With AxiTrader, you have the advantage of being able to trade both the Cash CFD (Spot) and the Futures CFD. The Cash CFD is based on the Oil spot price - the cost of buying or selling oil with immediate delivery. The Futures contract is an agreement to buy or sell Oil at a predetermined price at a specified time in the future.
AxiTrader is offering the following Cash CFDs:
- USOIL – Spot price of US Crude Oil
- UKOIL – Spot price of Brent Crude Oil
The available Futures CFDs are:
- fs – CFD based on the WTI Crude Futures contract
- fs – CFD based on the Brent Crude Futures contract
Who is trading Oil?
il importers and exporters use futures to hedge their exposure in the physical market. However, there are also many speculators participating in the Oil market, and trying to make a profit from both rising and falling prices.
Long-term traders aim to make a profit from price fluctuations that occur over weeks or months. However, Oil can be a highly volatile trading instrument at times, which makes it interesting for scalpers and intraday traders as well.
What is moving Oil prices?
Just like any other commodity, Oil prices are driven by the perceived supply and demand in the market. The state of the world economy is also an important factor. During a recession, the demand for Oil will decline. On the other hand, strong economic growth will boost demand for the commodity.
Which data releases should I monitor?
Traders are paying close attention to two inventory reports which are released weekly in the United States. The first one is the API (American Petroleum Institute) update, released every Tuesday at 04:30 PM local time. The second one is the EIA (US Energy Information Administration) report, released on Wednesdays at 10.30 AM local time. Out of the both, traders pay more attention to the EIA data, but both can move the market.
The OPEC meeting (Organization of the Petroleum Exporting Countries) is another major event. The organization usually meets twice a year, in Vienna. However, OPEC may from time to time hold an emergency meeting.
How can I track market positioning?
Unlike FX – which is a decentralized market – a lot of speculative trading occurs on the Futures exchanges, who provide data about the overall market positioning. You can look up the CFTC Crude Oil speculative positioning data to get a feeling for the current sentiment.
Oil prices have been hit hard in recent weeks. There are plenty of uncertainties around the Coronavirus and what impact it will have on the global economy. Furthermore, OPEC has drastically lowered their forecast for oil demand this year, primarily driven by the ongoing crisis in China.
It does not look any better from a technical perspective either. There are no signs of a recovery yet and the recent breakout below $50.40 support suggests the commodity may soon test the $48 support level.
The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
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