How to trade oil: a complete guide to oil trading

Oil trading involves the buying and selling of crude oil and its derivative products. Read on to explore the fundamentals of oil trading, gain insights into the factors influencing oil prices, and learn how to trade oil on Capital.com.

What is oil trading?

Oil trading is the process of buying and selling oil in the financial markets. Unlike physical oil transactions, where the actual commodity is exchanged, oil trading using derivatives involves speculating on price movements without owning the underlying asset. This can be done by taking positions on the current price (spot market) or future price movements of oil. 

Oil traders aim to capitalise on price fluctuations, leveraging factors such as geopolitical events, supply and demand dynamics, and economic indicators to make informed decisions about when to buy or sell.

What moves oil prices?

Oil prices are influenced by a range of factors that collectively shape the global energy market. Here are some of the key determinants.

Supply and demand: The basic economic principle of supply and demand is a fundamental driver of oil prices globally. Quite simply, when demand for oil surpasses supply, prices tend to rise, and vice versa. Factors such as economic growth, industrial activity, and transportation needs play a significant role in demand.

Geopolitical events: Political instability in major oil-producing regions can disrupt the production and distribution of oil, leading to fluctuations in prices that can have a large impact on supply chains across the world. Tensions in the Middle East, for example, often have a direct effect on oil markets.

OPEC decisions: The Organization of the Petroleum Exporting Countries (OPEC) and its allies can influence oil prices through production quotas. OPEC’s decisions on production levels can impact global oil supply and, in turn, prices.

Economic indicators: GDP growth, inflation rates, and employment figures can all have a substantial impact on oil prices. A strong global economy tends to increase demand for oil, while economic downturns can lead to decreased demand. Related to this, individual government policies and regulations, such as environmental standards and taxation, can influence the production, distribution, and consumption of oil, affecting prices.

Currency strength: Oil is traded globally in US dollars, so fluctuations in the value of the US dollar relative to other currencies can influence oil prices. When the dollar strengthens, oil becomes more expensive in other currencies, which can potentially reduce demand.

Natural disasters: Natural disasters can disrupt oil production and distribution infrastructure, affecting supply and leading to price volatility.

Technological advances: Advances in technology and the global shift toward renewable energy and energy-efficient technologies is already impacting market sentiment and the long-term outlook for oil demand.

Inventories: The levels of oil inventories and storage capacity can impact prices. High inventories may indicate oversupply, putting downward pressure on prices, while low inventories may signal potential shortages, leading to price increases.

Why trade oil?

Traders are drawn to oil markets for various reasons. For one, the volatility that can characterise oil price movements provides traders with the chance to capitalise on short-term fluctuations by buying and selling oil contracts. Additionally, the oil market's liquidity, marked by high trading volumes, allows traders to swiftly enter and exit positions without significantly impacting prices. 

Beyond the potential for profit, oil trading can offer diversification benefits due to its nature as a commodity. The physical, finite, and geopolitical characteristics of commodities like oil – along with the critical role oil plays in various industries across the world – contributes to its distinct behaviour compared to other financial instruments.

Moreover, oil’s close ties to global economic conditions make it an attractive asset for those seeking insights into broader economic trends and potential market shifts. Geopolitical influences, speculative motivations, hedging practices, and attention to economic indicators further contribute to the multifaceted appeal of oil trading. 

Trading oil with leverage

You can trade oil through financial derivatives such as CFDs and spread bets, which give you leveraged exposure to the fluctuating price of oil. It’s these underlying price fluctuations that traders attempt to profit on when taking a position. 

By trading oil with leverage, you can control large positions with a relatively small amount of capital, or ‘margin’. However, it’s important to remember that oil trading with leverage can also amplify losses, so traders must use it with caution and have a solid risk-management plan in place.

Costs involved in oil trading

As with all of our markets, when you trade oil with us you’ll pay a spread, which is based on the difference between the market price at which you can buy, and the price at which you can sell. 

For example, if you’re trading US Crude Oil Spot, our spread is from 3 points, which you will pay on the opening and closing of the trade. 

You may also pay additional fees, for example if you use a guaranteed stop-loss* or if you hold a trade overnight. As with all Capital.com instruments, you won’t pay any commission when oil trading on our platform – but there may be other fees where applicable.

It’s advisable always to make sure you’re aware of the cost of trading before you open a position. You can do this via our charges and fees page.

*Stop-losses are not guaranteed, but we offer guaranteed stop-losses (GSLs) for a fee. You can check the GSL fee value in a deal ticket when opening a position and adding a GSL.

How does oil trading work?

How to trade oil with Capital.com

On Capital.com, you can trade US Crude Oil Spot or Brent Crude Oil Spot – some of the most popular oil markets to trade globally. You can trade oil with us by following these steps:

• Step 1Select US Crude Oil Spot or Brent Crude Oil Spot from our commodities markets tab
• Step 2Choose whether to trade with a CFD or spread bet
• Step 3Consider applying a stop-loss to manage risk 
• Step 4Open your position long or short
• Step 5Manage your position, monitoring fundamental and/or technical drivers
• Step 6Close your position

Why trade oil with Capital.com

When you trade oil with Capital.com, you’ll get:

• A clear, easily-navigable interface across desktop, app and tablet 

• Rapid withdrawals*

• Multiple chart types and 75+ technical analysis tools 

• Insightful education via courses, videos and webinars, as well as an in-platform, asset-specific Reuters feed

• Round-the-clock support 

Stay up to date with the latest oil news and analysis.

*98% of withdrawals are processed within 24 hours, according to our internal server data from 2022.

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