A Concise Guide to Trading Oil

A lot of investors out there do not understand how oil can be traded, although its price impacts our daily lives. These can be seen in the prices of filling up our vehicles in the gas station to our cost of groceries and even the cost of flight tickets.

Factors Affecting the Price of Oil

Ideally, factors of supply and demand determine the price of oil. The price of oil would hike up when we find more demand to the supply (here we find more buyers than sellers). On the other hand, we’ll see a reverse whereby price goes down when supply gets higher than demand.

The year 2012 is expected to see a rise in the demand for Crude oil to the tone of 91 million barrels per day. This growth is driven by emerging market economies, alongside the decline in OECD. We had daily supply stand at 88.3 million barrels per day in June 2011, and Saudi Arabia boosted supply from the Organization of Petroleum Exporting Countries (OPEC).

The quantity of oil has always been the major supply problem. We find a lot of refineries out there who depend solely on high quality ‘sweet’ crude, which is meant to satisfy environmental requirements.

It is worth note taking to point out the fact that investor’s speculation plays a vital role on oil prices. We find a lot of traders who hold on to commodity-linked investments on the long term, while others invest on oil derivatives on a short term in a bid to earn some profits.

Understanding Oil Trading

Trading oil is a bit unlike buying and selling of stocks, and it should be traded using specific techniques, just like those listed below;

1. Low Capital investment – It is possible for anyone to control an oil contract worth many times more than the account’s holding, with as little as $300 in equity. This is possible because of the leverage offered, making it possible to start making huge profits with a small invested amount.

2. Reliable Trading Software – At this point, it is imperative to have an established trading software client. Poor trading software is like buying a computer without Microsoft installed on it. With reliable trading software, trading oil would be as easy as ABC.

Conclusion

Investors can be able to make huge profits via oil trading due to the wide range of opportunities it offers. Investors get direct exposure to commodities via derivatives, or indirect exposure via stocks issued by energy firms.  It is important to note that ‘Oil is king’.