Crude oil is the most commonly traded raw material in the world. The oil markets can be particularly volatile, which is why some traders are attracted to this commodity. In times of geographical or economic instability, the price of oil often fluctuates between high and low prices, so it can be opportunistic for experienced traders.
Oil CFDs are one of the most popular methods of speculating on oil prices. Contracts for difference (CFDs) are derivative products that allow you to trade on the price movements of the underlying asset, without buying the crude oil outright at its spot price. With CFD trading, you agree to exchange the difference in value between the time that a position is opened and closed. Given the volatility of the oil market within recent years, this can lead to either profit or loss.
Crude oil CFDs require you to trade with leverage. In order to open a position, traders are only required to place a small fraction of the full trade value, otherwise known as a deposit. This gives you better exposure to the oil market and can magnify profits.
Oil trading falls within the energy category within the commodities market. The oil and gas industry produces international commodities such as Crude Oil Brent and Crude Oil WTI, as well as more local commodities including natural gas and heating oil for homes.
Crude oil prices can vary depending on their origin and current supply and demand, and oil trading prices fluctuate throughout periods of volatility. The two most commonly traded benchmarks of crude oil are Brent and West Texas Intermediate (WTI).
There are several differences between WTI and Brent crude oil that are important to consider when choosing your commodity to trade. Brent is sourced from the North Sea and has more prevalence internationally, whereas WTI can only be sourced from oil fields inland of Texas and Louisiana, for example. WTI is seen as a lighter and sweeter alternative crude oil with a lower sulphur content. Given the fact that Brent is sourced close to the sea, this reduces transportation costs in comparison with WTI, which is sourced from land. This can affect the price of both WTI and Brent CFDs when it comes to buying and selling raw commodities.
WTI vs Brent oil prices
In recent years, Brent crude oil is usually more affected by political, economic and geographical pressures and instability. Because this raw material is more widespread for traders across the world, in times of crisis, its price tends to fluctuate and there is often a surge in Brent oil prices. As WTI is less widespread, it does not feel the effect of international events and therefore keeps a lower price throughout the year. These external factors are vital for your understanding of the oil markets and help to form part of your fundamental analysis.
Some traders enjoy the thrill of trading crude oil CFDs in such a volatile market. Leveraged trading, otherwise known as trading on margin, allows the trader full exposure to each financial asset.
Example of CFD oil trading
It is worth noting that the size of CFD trades are measured in ‘lots’, and in this case, one lot represents 100 barrels of crude oil.
Let’s use the example that Brent crude oil is priced at £50 per barrel; this means that one lot is worth £5000. In order to calculate your possible profits or losses, you need to assess the difference between the opening and closing price of the position.
If you think that the Brent oil price will increase, you could buy and go long. If you think that the Brent oil price will fall, you could sell and go short.
Let’s say that after opening your position, the subsequent oil price increases to £55 per barrel and you decide to close the position. The difference between the opening and closing price stands at £5. In order to assess your profit or loss, you then multiply the difference by the size of the trade (£5 x 100). This means that there is a total profit of £500 from this position.
Now for the interesting bit, where is oil heading??
Morgan Stanley raises Q3 2022 Brent oil price forecast to $130
Analysts at Morgan Stanley said that an array of headwinds meant that oil demand in 2022 would be lower than previously thought.
However, they also warned that its impact on prices would be more than offset by an embargo on Russian oil, self-imposed restrictions on purchases of the same by commodity traders, and lower growth in supplies from Iran.
All told, they raised their projection for the price of Brent crude oil in the third quarter of 2022 to around $130 a barrel from $120 per barrel previously.
Higher commodity prices, the conflict in Ukraine, Covid-19 in China and the prospect for tighter monetary policy by the Federal Reserve would crimp demand, they said.
Hence, they cut their global oil demand growth forecast for 2022 from 3.4m barrels a day to 2.7m b/d, adding that the risks to that call were "at least evenly balanced".
On the supply side of the equation, they now anticipated an approximately 2.0m b/d drop in production of oil and condensate in Russia for over the year, versus a prior estimate for a decline of about 1.0m b/d.
Iranian oil supplies meanwhile were now seen increasing by 0.5m b/d and not 1.0m b/d due to a reduced probability for a new nuclear agreement.
They now assessed the odds of such a deal at 50%.
Which ever way it goes, it moves , use your moving average to swing trade and catch the volatility.
Swing trading refers to a trading style where traders seek to sell (get short) at potentially pivotal highs, and then reverse and buy (go long) at significant lows.
Don't know how? Ask.