Often referred to as ‘Black Gold’, oil is one of the most popular commodities amongst traders worldwide. One of the main reasons for oil’s popularity with online traders is the volatile nature of the commodity. This is in part due to the many factors that effect the price of oil. From global economic factors through to tensions in the main oil producing regions, trading oil is often a rollercoaster ride for online traders.
Introduction to TigerWit Oil products
Trading oil using leverage can greatly multiply your purchasing power and allow you to open deals much larger than your available margin.
Our innovative and dynamic trading app allows you to access the market no matter where you are. We also support MT4 access with full Expert Advisor integration.
As the value of oil prices rise and fall, TigerWit allows you the opportunity to open trades in either direction and potentially profit from any market movement.
Oil is one of the world’s most widely traded and consumed commodities. Oil trading takes place across the world, as nearly all economies are reliant on oil to some extent. Not only does oil provide the fuel for cars, trucks and other vehicles. Oil is also a raw material for many chemical and industrial processes and as such is almost indispensable to us.
What happens to the price of oil and in oil trading matters on a global scale.
You can trade oil through TigerWit as a cash-settled CFD or Contract for Differences and we offer oil CFD contracts on both Brent and WTI crude oil.
Oil is traded in barrels each barrel contains 42 gallons or 158.98 litres of oil. The term barrel dates back to the late 19th century when a wooden barrel containing 42 gallons of crude oil became the standard unit for transportation and trading purposes. These days of course oil is transported in giant oil tankers or through pipelines.
Oil is traded globally but there are two specific crude oil blends that the oil markets tend to focus on. These are Brent crude oil and WTI or West Texas Intermediate oil. Brent crude was historically extracted from the Brent field in Britain’s North Sea located between the UK and Europe and is associated with UK, European and Middle Eastern markets. Whilst WTI is a US-centric crude oil associated with North and South American markets.
Both WTI and Brent Crude oil are traded as futures contracts, WTI is traded on the New York Mercantile Exchange or NYMEX. that is now part of the Chicago Mercantile Exchange or CME. Whilst Brent crude was traditionally traded on London’s IPE or International Petroleum Exchange, which is itself now part of ICE, the Intercontinental Exchange.
In oil trading markets each crude oil futures contract or lot, whether it’s West Texas Intermediate or Brent, is over 1,000 barrels of oil. Crude oil futures are priced monthly and are deliverable. That is the buyer and seller make and take delivery of physical oil at the end of the contract’s lifetime.
Don’t worry though you won’t need an oil tanker to be able to trade in the oil markets, because if you trade oil using cash-settled CFDs there is no delivery of oil to worry about, as you pay or receive cash depending on how your oil trade has turned out.
When you trade CFDs on oil or other commodities you never own any oil, instead, you are speculating on the rise and fall of oil prices. Unlike oil futures trading, when you are trading oil CFDs you are not trading for a specific delivery month or date but instead, you trade a cash price that is derived from the futures prices for Brent and WTI.
Trading oil CFDs means that your trading can take place in either direction. If your trading idea is that the price of oil will rise, then you will want to open a long or buy position. But if you believe that the price of oil will fall then you will be trading on the short side and opening a short or sale position.
Oil markets are global but just like all other commodities markets, oil prices are affected by changes in supply and demand.
On the supply side of the oil market, oil producers and consumers are often located at great distances from each other. For example, Mexico is an oil producer and China a large consumer of oil. Yet the two countries are 12,900 kilometres apart. So the costs and availability of transportation for crude oil are an important factor in establishing oil prices un the markets.
On the demand side of the oil markets, the performance of major economies can directly influence oil prices. If those economies are growing or expanding, then they will typically use or demand more oil. However, if these major economies are shrinking or contracting then they will use and require less crude oil, meaning that there could be too much oil in the markets for the level of demand.
Oil prices are also influenced by geopolitics and conflict particularly in relation to the Middle East, and by the actions of OPEC or the Organization of the Petroleum Exporting Countries and large volume oil producers such as Russia.
What time can you trade oil?
Is oil trading profitable?
Can oil trading be high risk?
The world's energy markets are undergoing a transition as we become more aware of our impact on both the environment and the world’s climate and try to move towards a low-carbon future.
Nonetheless, oil remains an important part of our energy mix, particularly where transportation is concerned. The chart below plots the global demand for crude oil between 2006 and 2019 in millions of barrels per day or MBPD, as we can see demand in 2019 reached just over 100 MBPD.
And whilst renewable energy sources, electric vehicles and alike are becoming more commonplace oil is likely to remain a key source of energy and raw materials for decades to come.
The events of 2020 impacted the global economy and oil prices felt the knock-on effects. Both WTI (West Texas Intermediate crude) and Brent crude oil prices experienced sharp falls and a subsequent rebound during the first half of 2020. In fact, at times during this period, crude oil was amongst the most volatile instruments in the financial markets. That volatility was driven by market sentiment and technical factors within physical crude oil markets particularly around the NYMEX or New York Mercantile Exchange where a large proportion of WTI crude oil is traded.
Oil prices are influenced by a wide range of events but since the 1970s geopolitical events and conflict have been among the biggest influences on the price of crude oil.
OPEC or the Organization of the Petroleum Exporting Countries was formed in 1960 but rose to prominence in the 70s as member states took control of their domestic oil production and in 1973 OPEC enforced an Oil embargo against many western nations and by 1974 oil prices had risen by as much as +400%, firmly establishing OPEC’s credentials on the world stage.
The chart above shows the price of crude oil in the 50 years between 1970 and 2020 highlighting some key events that affected prices. You can see that wars, other conflicts and production cuts have often limited supply and driven oil prices higher. Whilst market crashes and an over supplies of crude have typically caused oil prices to fall.
The events highlighted above are the most important on either a global or regional scale however oil prices remain sensitive to thousands of smaller influences as well.
Political influences on oil faded somewhat in the middle of the last decade but have reappeared more recently as China and America spar over trade deals and leading crude oil producers have made and then broken deals about levels of crude oil production. Government's stimulus packages and central bank intervention have now become influential as the world’s economies attempt to re-open after the Coronavirus.
Against this background, the oil market is likely to be subject to further volatility and are therefore likely to provide many opportunities for traders to consider whether to get involved in or not.