Beginners in Crude Oil Trading—How Supply and Demand Affect Oil Prices

2021-11-18 16:35:32

Why trade crude oil and how does crude oil trading work?

Crude oil is the main energy source of the world economy, making it a very popular trade commodity. It is a naturally occurring fossil fuel that can be refined into various products, such as gasoline, diesel, lubricating oil, wax and other petrochemical products. It is in high demand, large transaction volume, and extremely liquidity. Therefore, crude oil trading involves low spreads, frequent trading patterns and high volatility.

Brent crude oil is the world's oil benchmark, and nearly two-thirds of oil contract transactions are Brent crude oil. WTI is the benchmark oil in the United States.

Transaction Hour

WTI is traded on CME Globex:

Sunday to Friday, 6:00 pm to 5:00 pm (one hour off every day from 5:00 pm to 6:00 pm)

Brent crude oil trading on ICE:

Sunday to Friday-7:00 pm-5:00 pm

Understand the factors that affect price changes

When trading crude oil, as with many commodities, the main focus is supply and demand. Whether it is news events or economic reports or tensions in the Middle East, traders have to consider how supply and demand are affected, because changes in supply and demand will directly affect prices.

Supply factor

The shutdown or maintenance of major oil refineries in the world

Whether it is the Forties pipeline or the refinery in Texas, it must be concerned because it may have an impact on oil supply.

The war in the Middle East led to supply concerns

when the Libyan civil war began in 2011, oil prices rose by 25% in a few months.

OPEC production cut or postponement

As early as 2016, when the cartel announced its decision to reduce global supply by 1.9%, oil prices had risen from US$44/barrel to US$80/barrel. Similarly, after understanding the importance of OPEC, it is also worth knowing who the world's top oil suppliers are. This information can be obtained from the EIA website.

Demand factor

Seasonality

The hot summer will lead to increased activity and increased oil consumption. The cold winter causes people to consume more petroleum products for heating.

Oil consumers

The largest consumers of oil are usually developed countries such as the United States and European countries. However, there has been a surge in oil consumption in Asian countries, namely China and Japan. Therefore, traders must pay attention to the level of demand and economic performance of these countries. Any economic slowdown may affect oil prices because the demand side may fall.

Correlation of global growth

The basic positive correlation between crude oil prices and global growth. As the two largest economies in the world, China and the United States are important barometers of global economic growth. Their respective major stock indexes are trending in line with the price of crude oil-when the stock index falls, the price of crude oil tends to fall, and vice versa.

Alternative energy

Although fossil fuels such as oil and natural gas continue to dominate clean energy, they continue to promote sustainable development on a global scale. This will definitely affect future crude oil prices, which makes it a key factor to monitor in crude oil trading strategies.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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