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How to Trade Brent and WTI Crude oil

jeffriess
May 22, 2020
by Joseph Jeffriess, Market Analyst

Oil prices have been fluctuating over the past few months and have presented market opportunities for traders. Learn how to trade crude oil with this guide.

What is Crude Oil? 

Crude oil is an unrefined petroleum product and is a type of fossil fuel. Once refined we can use the oil as diesel and gasoline. However, crude oil is also a non-renewable resource and we cannot produce it at the same rate we use it, making its supply limited. Crude oil is derived through drilling and is also commonly known as ‘Black Gold’.

How to trade crude Oil 

There are three ways in which you can start trading oil including investments, futures and options and Oil CFDs.

Oil CFDs allow you to trade without having to own the commodity and instead, you can speculate on the changing oil price. When you trade Oil CFDs you are agreeing to exchange the price of oil from the point at which the contract is opened to when it is closed.

Most people haven’t traded oil or haven’t thought about including commodities in their trading portfolio. With recent fluctuations in the price of oil, this could be a great opportunity to take advantage of market volatility. Below are three things to consider before you buy and sell Oil CFDs with Eightcap.

Understand what affects the price of oil 

Supply and demand are the main factors which can heavily influence the price of oil and as a result, cause large price swings on the commodity market. If there is an oversupply of oil and not as much demand traders will most likely sell to lower ground. On the other hand, if there were little supply and more demand then traders will buy to higher ground.

Learn about the two most important oil trades 

Trading oil is done through two significant markets, Brent Crude and West Texas Intermediate Crude (WTI). Brent originates near the North Sea and WTI originates primarily in the U.S. from Texas, Louisiana and North Dakota. It is important to understand the differences between the two in order to gain a clear picture of price indicators.

Examine Long Term Charts For Brent and WTI Crude

In order to understand how the price of oil has fluctuated over the years, you should examine the long term chart and see where the major price highs and price lows are. Once these have been determined you can then look into the factors which have caused these major price movements. Have there been trends over the years? Or are price and lows due to tensions occurring in OPEC?

Risks when trading Oil 

There are a number of risks involved when trading oil, the most significant risk is the volatility within the oil market. Over the recent months in 2020, the oil market has experienced exceptional amounts of volatility due to the Coronavirus pandemic, which has caused a global economic slowdown. As well as the global pandemic there were ongoing tensions between OPEC and Russia over production cuts, as a consequence of this, the oil market dropped to 20-year lows in the first quarter of 2020.

Next week we take a more in-depth view of the different factors which affect the price of oil as well as identifying the difference between Brent and WTI Crude.

All times are AEST.