Business

4 Crude Oil Trading Strategies All Beginners Should Know

img source: freepik.com
Written by Quentin Hack

Oil is one of the most significant resources known to humanity. We’ve found extreme uses of it in various walks of life. Crude oil is formed over decomposing living matter over millions of years under the earth’s crust. It is a fossil fuel that can be transformed into various other products in our day-to-day life, such as petroleum, petroleum jelly, diesel, etc.

It is a resource that cannot be easily renewed since it forms at a much slower rate than we consume it in. Compared to every other source of energy, crude oil is viewed as the most important out of all of them and has the world’s highest demand. This is due to its high versatility and ability to be refined into so many different products. Go URL to know more about crude oil and how it affects world economies.

Deep beneath the earth’s crust is home to many resources that are still untapped. But one of the most used ones is natural gas used in vehicles as CNG ( Compressed Natural Gas ). Crude oil is obtained through oil rigs, which drill deep into the earth’s surface miles below sea level. This makes it one of the most complex resources to get, which comes at a high cost.

Given how crucial crude oil is, it is considered to understand that there is a considerable market for crude oil, and countries themselves, on the whole, are the participants of this resource. But that does not mean marginal investors cannot funnel their money into it. That being said, let’s take a look at the various strategies that every beginner needs to know.

img source: freepik.com

Supply And Demand For Oil

The relationship between supply and demand is significant to understand. Supply for oil mainly comes from three sources, the United States, Russia, and last but certainly not least, OPEC, a global group of countries usually led by Saudi Arabia. OPEC stands for the Organisation of Petroleum Exporting Countries.

Alongside the vast Russian and American oil reserves, it supplies the global economy with the energy that powers industries, transport, and homes. Its daily output is a staggering 88 million barrels, proof that this is a crucial industry for all countries across the globe and how they function. On the demand side, we have the largest economies in the world.

The United States, Europe, and China, followed by a mix of large and mid-sized economies that don’t have reserves of their own such as Japan and India. To put it very simply, the balance between these supply and demand sizes determines oil price. But here is where it gets a bit more complicated. There are several different types of oil, and of course, they have several different prices.

But the two most popular types of oil are called WTI and Brent Crude. WTI stands for West Texas Intermediates and shows the price for oil coming from the fields of the US, which are mainly located in the Gulf of Mexico. Brent oil refers to the oil produced in the areas of the north sea.

Trading Oil

So now, let’s talk about trading oil. Oil is the second most prized possession in the world in terms of resources apart from gold. A considerable volume of oil is traded across world economies, and there is no rule that any one person cannot jump in on some of the actions. But like everything else, it is essential to realize that there’s no use in doing something unless you do it right. Investing and trading in a calculated manner can lead to guaranteed resources.

Still, if you were to go into it without a strategy, you’re most likely to lose what you got and can turn into a gambling nightmare instantly. A few methods you equip could do you good and guarantee you returns for the long term rather than volatile short-term returns. Therefore, without further ado, let’s get into it.

img source: freepik.com

4 Strategies For Trading Oil

  • Long term investment

The first strategy lines up with a fundamentally philosophical one. This strategy addresses the drawbacks of taking the easy road. When you’re trading oil, always go for the long-term aspect. This is because the market is incredibly volatile and can lead to even minute-to-minute fluctuations in oil price. Unless you can spend every minute of your day dedicating it to day trading, take the longer path that will give you greater returns.

  • Know-how

It would be straight-up irrational of a warrior to walk into a battlefield without his needed weapons. The same goes for beginner investors on the stock market who are liable to suffer huge losses due to a lack of technical know-how. In reality, no one can tell how the market will progress because the market is highly permeable to even the smallest of effects and hence is very unpredictable.

There are various techniques that can help you intuitively make the right decisions on the stock market. Make sure you learn to read the multiple candlestick graphs and other statistical parameters that influence oil price. This way, you get a better grip on the intricacies of trading.

img source: freepik.com

  • Dollar-cost average

It sounds like a fancy term but is a straightforward strategy to apply. Since the oil price is highly volatile, pooling in all your money into it at a single point in time could be very risky and could lead to losses more often than not.

The dollar cost average strategy is the method of investing your entire amount in different periods of the life of the oil stock. This way, you spread out your risks and make cumulative profits over time in a safer and more calculative way.

  • Analyzing trends

Trends are the backbone of how the effects on the stock market are perceived. Various trends have various consequences. So a good strategy would be to be updated on current affairs, and world news as relationships between countries could affect the price of oil that you want to trade. If you see a positive trend, you can invest in crude oil and vice versa.

About the author

Quentin Hack