How To Trade Oil

Posted by Oilism.com on September 1st, 2010 at 06:40am

How To Trade Oil

There are many ways Investors can gain exposure to Oil ranging from Oil stocks, Exchange traded funds through to Futures contracts.

Crude oil is the raw material that is refined to produce gasoline, heating oil, diesel, jet fuel and many other petrochemicals

What makes it move

Geo-political Events

Whether it’s militants in Nigeria or Israel and Iran at each other’s throats any Geo-political tensions in any of the oil producing regions will play a great role in the price of crude as supply can be upset.

Here are the world biggest producers of Oil along with the size of the reserves and their market share.

Country

reserves (bbl)

Share

1 Saudi Arabia

267

19.66%

2 Canada

179

13.16%

3 Iran

138

10.20%

4 Iraq

115

8.47%

5 Kuwait

104

7.66%

6 United Arab Emirates

98

7.21%

7 Venezuela

87

6.41%

8 Russia

79

5.82%

9 Libya

41

3.05%

10 Nigeria

36

2.67%

1,144

84.31%

Production

42% of oil is produced by countries that belong to The Organization of the Petroleum Exporting Countries (OPEC) who are headquarted in Vienna.

According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel’s interests, individually and collectively.
It also pursues ways and means of ensuring the stabilization of prices in international

oil markets with a view to eliminating harmful and unnecessary fluctuations.

OPEC attempt to control the price of oil by increasing and decreasing output from its members.

If they want the price to go higher they will cut output and if they want it lower they will increase output.

OPEC meetings and decisions can be found on the getdealing.com event calendar.

OPEC MEMBERS

Algeria Africa

Angola Africa

Ecuador South America

Iran Middle East

Iraq Middle East

Kuwait Middle East

Libya Africa

Nigeria Africa

Qatar Middle East

Saudi Arabia Middle East

United Arab Emirates Middle East

Venezuela South America

Global Growth Expectations

The more the world economy grows the more demand there is for Oil which will drive prices higher. The less the world economy grows the less demand there is for oil sending prices lower. In recent year’s oil traders have started to pay particular attention to growth in China and India as these mainly manufacturing economies are heavily dependant on oil.

USD

Oil (like gold and other commodities) normally has an inverse relationship with the USD meaning when the USD weakens the oil price should move higher. If the USD falls then because oil is priced in $’s you will need more $’s to buy the same amount of oil.

Seasonal Demand

Demand is generally highest during the summer and winter months. A very hot summer or very active driving season (for summer vacations) can increase the demand for crude oil and cause prices to move higher.

An extremely cold winter causes higher demand for heating oil, which is made from crude oil. This usually causes prices to move higher. Watch the weather in the Northeast, since it is the part of the country that predominately uses heating oil.

OIL Inventory Data

Every Wednesday afternoon the Energy Information Administration releases the US weekly oil and gas inventory figures which give an account of the stocks of oil and natural gas the U.S currently have in reserve. If the Inventory number is lower than the consensus estimate then the price of crude oil may rise and if it is higher then the price should fall but this is not always the case.

Oil Inventory data can be seen live on the event calendar in getdealing.com dealing room along with the consensus estimate.

Watch for oil production cuts or increases from OPEC

Under OPEC