Oil Trading: How to Trade Crude Oil

The choice depends on how long traders are willing to wait for the result, and what kind of result they consider acceptable. Below are the strategies that are the most stable in terms of profit. Remember the beginning of the COVID-19 pandemic and what happened to oil demand.

The best time of day to trade oil is when the markets are most active. These periods can occur quite regularly as oil is such a popular and volatile market. There is usually a lot of activity when the underlying exchanges first open, and in the last half an hour or so before they close. While your trade is open, you should continue to perform technical analysis, identifying key turning points in the market. It’s also important to keep up to date with any news or data releases that could move the price of oil.

  • For example, if there is a news announcement of an oil spill or cut in production, this will affect the price of oil and its trading companies, which will need to be factored into your trading strategy.
  • However, since 2021, the price of both assets has been steadily growing.
  • If you choose to buy futures or options directly in oil, you will need to trade them on a commodities exchange.
  • U.S. and overseas crude refiners are the sole focus of the VanEck Vectors Oil Refiners ETF .

It is thanks to the world’s vital reliance on oil that allows traders to profit from supply and demand imbalances. In this guide, we will uncover exactly what oil options contracts are, what advantages these products offer, and outline three steps that will allow any investor to start trading. Because commodity ETFs frequently suffer from negative roll yield as futures contracts expire, they’re suitable for short-term speculation only.

How do you buy oil

West Texas Intermediate is the underlying commodity of the New York Mercantile Exchange’s oil futures contract and one of the main global oil benchmarks. You can trade a variety of oil markets with including popular crude oils WTI and Brent Crude, as well as no lead gasoline and heating oil. When you trade US Crude oil options, you’ll be trading the price of oil options via CFDs.

how to trade oil

Gold price has witnessed a steep fall after surrendering the critical support of $1,770.00 in the Asian session. The precious metal has tumbled to near $1,763.00 as investors are turning risk-averse after North Korea warns the US that it will face ruthless military activity against its joint drills in its region. Even without these questions, however, its expected effect on the global oil supply balance may be a little exaggerated. Six of the seven members of the G7 already have bans on the imports of Russian oil in place or are members of the European Union, which means they would be covered by the embargo.


Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices. Spread betting is our most popular derivative product that allows traders to trade on oil price movements for a wide selection of commodities, including both Crude Oil Brent and West Texas. Spread betting is a leveraged product, meaning that only a percentage of the full trade value is needed as a deposit to open a position. As a trader, you will not own the underlying asset but instead have the ability to speculate on price movements.

If Forex trading is a hobby that brings profit, then medium-term trading is the best option. Oil quotes very often correlate with stock quotes of major oil companies. It would be profitable to form an investment portfolio Vantage FX Broker Review from the shares of such companies as Shell, ExxonMobil, Chevron, and Rosneft. The chart above shows the correlation between oil and natural gas since 2020. From 2020 to 2021, the oil price fell while the gas price rose.

Finally, a call oil option is at-the-money if the underlying futures price is the same as the strike price. An option is a type of contract that states the holder has the right, but not the obligation, to buy or sell an underlying asset at a predefined price on a pre-defined expiration date in the future. The pre-defined price is more commonly referred to as the strike price. Crude is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel, and many other petrochemicals.

Tools to help analysis

Crude oil is one of the favorite markets of futures day traders. The market typically reacts very well topivot pointsand support and resistance levels. Stop orders are automatically triggered that can help reduce the high risk of a market that can make very swift runs—up or down—at any given time. You have to make sure you use stop orders in this market. Many of the same principles that apply to stock index futures also apply to crude oil futures. If you like trading the E-mini S&P, you’ll probably like crude oil, too.

To ensure that investments in oil companies meet your expectations, consider several factors when building a portfolio. First of all, the company should not have large debts and a tendency to reduce production volumes. A potentially profitable company is always performing production drilling and has potential contracts for developing new fields. Also, the company’s stock price should not be higher than the average historical price.

You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Once an options trading account has been created, the next step is to decide what type of options contract you would like to trade. Which type of option you pick will depend on your views on where oil prices are heading in the future — which is when homework on oil fundamentals comes in handy. The reason prices move so swiftly is that traders who have short positions in the market tend to cover their shorts quickly if the price creeps up, either eroding their gains or causing losses.

Crude oil is used for manufacturing everything from plastics to petroleum, cosmetics​ to cars, and fabrics to pharmaceuticals. Finally, you can also invest in oil through indirect exposure by owning various oil companies. The more common way to invest in oil for the average investor is to buy shares of an oil ETF. There are many ways that you can invest in oil commodities. XOP is the only one of the three to exclude crude refiners.

how to trade oil

The decision of whether to buy or sell is better known as “exercising” a contract. Crude oil entered a bear market in June 2014, when the price was just under $108 per barrel on the active month NYMEX crude oil futures contract. By February 2016, the price had depreciated to less than $30 per barrel, and in January 2019, the price was trending around $53.84 per barrel for WTI Crude. Due in part to the Russia–Ukraine conflict, as of March 2022, the price was hovering around $110 per barrel.

The price of an oil contract decreases with the strengthening of the dollar, and vice versa, when the dollar weakens, the price of oil in dollars rises. The “Sell High, Buy Low” principle (i.e. sell when prices are expected to decline, and buy when their growth is expected) applies to many commodity markets in general and to the oil market in particular. The maximum risk of loss of funds should not exceed 5-6% of the trader’s total balance. Moreover, each transaction should be no more than 2% of your deposit. Trading oil futures included in your portfolio along with bonds/currency pairs/companies stocks will ensure risk diversification.


Alternatively, if on July 25, 2022, the market price of WTI crude oil futures was less than $95, the contract would expire worthless and the call option holder would have lost the premium of $2,000. With that description, it is easy to confuse options contracts with futures contracts, as both give the holder the right to buy or sell an underlying asset. However, the key thing to remember is that, with options, there is no obligation to buy or sell.

However, there are differences in the range of application and transportation. Above are charts for UKBrent and major oil producer ExxonMobil. As you can see, since the beginning of 2020, the price dynamics have been almost the same. For example, when the Libyan Civil war began in 2011, prices had seen a 25% rise from in the space of a couple of months. Here are five steps needed to make a consistent profit in the markets.

On the contrary, in the fourth quarter, trading activity is declining. Buyers and sellers are trying to complete all their transactions before the New Year holidays. Crude oil is one of the most important resources on the planet. Many factors influence its rate, so even experienced analysts find it difficult to predict the cost of the black stuff. Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.

Retail’s influence rises when crude oil trends sharply, attracting capital from small players who are drawn into these markets by front-page headlines and table-pounding talking heads. The subsequent waves of greed and fear can intensify underlying trend momentum, contributing to historic climaxes and collapses that Spectre.ai Forex Broker Review print exceptionally high volume. Once you’ve opened your position, you can monitor the profit or loss of your oil trade in the ‘positions’ section of our platform. As climate change moves to the forefront of global conversations, energy companies are increasingly under pressure to find new ways to generate power.

Another advantage of commodity ETNs is that capital gains taxes are deferred until the position is sold, while gains on commodity ETFs are taxed annually even if they remain in the portfolio. NYMEX is part of a group of commodity exchanges owned and operated by the Chicago Mercantile Exchange Group . For a Deriv Forex Broker more detailed explanation of leverages see our broker page. A 4.5% gain.1.5% fall in the market results in a 4.5% gain. That afternoon, you notice the price is $62.75, so you exit the trade, which now has a value of $62,750. Leverages can be fixed or variable, based on the margin requirement of the broker.

Change in oil production capacityWith an increase in production, oil-exporting countries will be interested in delivering more to the market. This is a positive signal if the demand is popular among buyers. However, if supply exceeds demand and no one wants to buy oil, its price will decrease. Seasonal factorDespite the fact that oil contracts are planned years in advance, there are certain periods when the activity of buyers and sellers increases. As a rule, oil trading is very active in the first quarter of the year as new contracts are concluded and old ones are reviewed.

Supply and demand dictate how prices move, but the market moves on emotion as well, especially with retail investors who day trade. When you trade a futures contract, you must either buy or sell—”call” or “put”—the commodity by the expiration date at the stated price. If you hold a call, the only way to avoid actually having to take physical delivery of 1,000 barrels of crude oil is to offset the trade before the expiration. Oil is an economically crucial resource, providing the bulk of energy for transportation as well as raw materials for manufacturing.