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Crude Oil Trading

What is Crude Oil ?

Unrefined petroleum that occurs naturally is called crude oil. This fossil fuel contains organic materials and several hydrocarbon deposits. The popularity of crude oil trading can be attributed to the following reasons:

● When crude oil is refined, it can lead to the production of high-demand fuels like kerosene, gasoline, and diesel. ● Crude oil can also be used for the production of plastic, steel, and fertilizers. ● Due to its non-renewable nature, crude oil is available in a limited quantity and cannot be replaced once used.

How Crude Oil Trading Works ?

The oil trading market includes two major components: Brent Crude Oil and the West Texas Intermediate. Since crude oil is non-renewable, it is affected by supply and demand factors, which lead to significant price fluctuations. It creates volatile trading conditions that are preferred by most traders. Within the Brent or WTI categories, you will come across several individual oil products to trade, like the oil futures market CFDs and the spot oil market. Every product has unique features and risks that traders should understand before investing in them. Every trader should be aware of the oil market dynamics to come up with strong strategies for profitable trading.

Important Features of the Crude Oil Market

Crude oil is an extremely volatile commodity and displays longer trending movements than other products. But other than companies like BPCL, ONGC, and IOC, crude oil trading is primarily for speculation rather than delivery. Before actively trading crude oil, it's crucial to learn about the different factors that lead to price fluctuations in crude oil derivatives:

● Crude Oil Supply and Demand: The price of crude oil is often affected by the laws of supply and demand. Storage capacity, production costs, and interest rates influence crude oil price movements in decreasing capacity. The price of crude oil will rise when there is an oversupply with steady demand. OPEC Announcements: OPEC, or the Organization of Petroleum Exporting Countries, includes all the major oil-producing countries across the globe. Certain OPEC announcements can lead to short-term changes in crude oil prices. Political Turmoil and Natural Disasters: Any kind of political instability or natural calamities in major oil-producing areas like the Middle East can impact pricing and supply routes. The Value of the US Dollar: The US plays a huge role in global oil trading. Therefore, the value of the US dollar largely influences the price of crude oil.

Can Retail Investors Go for Commodity Trading in Oil?

Retail investors can easily opt for commodity trading in oil. It demands minimal investment and enables investors to earn huge profits because of the high leverage. But crude oil futures are also highly volatile apart from being highly liquid. Therefore, crude oil price forecasting is extremely challenging.

In the beginning, you should consult your broker for crude oil trading. Gradually, you can move on to trading on your own.

courtesy to : 5paisa


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