Why is US Crude oil important to traders?
One of the world’s most valuable and essential commodities, crude oil was first discovered during the Industrial Revolution. Crude oil is composed of hydrocarbon deposits and is widely used for producing diesel, gasoline, and numerous petrochemicals.
Today, crude oil and its derivatives are considered the most widely-traded commodities globally. And it’s not surprising, because it touches almost every sector of the world’s economy.
In addition to its major use as a fuel, crude oil is a key component in the production of plastics, fertilisers, textiles, computers, cosmetics and even steel.
Currently, there are two major benchmarks for oil pricing – West Texas Intermediate (WTI) and Brent Crude oil. WTI crude oil is considered a light, sweet oil type with low sulphur content and gravity of 40, according to the American Petroleum Institute (API) gravity scale.
US Crude oil trading hours
CME Globex provides electronic trading for 24 hours/6 days a week:
- Sunday to Friday, 18:00 – 17:00, with a 60-minute break each day.
- Monday to Thursday, 00:00 – 21:00 and 22.05 – 00.00
- Friday, 00.00 – 21.00
- Sunday, 22.05 – 00.00
How to trade WTI Crude oil
There are several major reasons to trade crude oil, however, the most common are the following:
The presence of the crude oil commodity in an equity-only portfolio can lower the volatility, due to the absence of a correlation between the energy commodities and other asset classes.
- Safe Haven
Commodities can serve as a safe haven in the times of global economic uncertainty and market turbulence, because they can retain their value.
- Inflation Hedging
Commodities’ intrinsic value is independent from currencies. They will often hold their value, even if a currency falls during the period of inflation.
- Speculation on WTI crude oil prices
Commodities may be highly volatile, experiencing wild price swings. Trading crude oil CFDs is one way to try and profit from drastic crude oil fluctuations.
Trading crude oil requires some consideration, due to the market’s occasional high volatility and a wide choice of available instruments, from crude oil derivatives, such as futures and CFDs, to oil and gas company stocks.
Trading WTI crude oil can be volatile resulting in a high degree of risk. The chance of making large profits goes hand in hand with the risk of large losses.
You can trade crude oil CFDs right here, right now. Just sign up at Capital.com and use our advanced web platform or download the best-in-class investment app to trade on the go. It will take you just 3 minutes to get started and access the world’s most traded markets.
How to trade US Crude oil CFDs
One of the easiest and most popular ways to trade crude oil is with CFDs.
A contract for difference (CFD) is a type of contract between a trader and a broker in order to try and profit from the price difference between opening and closing the trade.
Most CFD trading providers allow traders to speculate on the price of crude oil futures contracts, however the contact sizes are often much smaller than standard future contracts. For example, a US crude oil CFD order can be for 25 barrels, instead of a standard futures contract of 1,000 barrels.
CFDs give you the opportunity to trade crude oil in both directions. No matter whether you have a positive or negative view of the crude oil forecast and predictions, you can try to profit from either the upwards or downward future price movement.
Trade US Crude Oil Spot CFD
Moreover, trading crude oil through CFDs is often commission-free, with brokers making a small profit from the spread - and traders trying to profit from the overall change in price.
Additionally, the 10% margin offered by Capital.com means that you have to deposit only 10% of the value of the trade you want to open, and the rest is covered by your CFD provider. For example, if you want to place a trade for $1,000 worth of crude oil CFDs and your broker requires 10% margin, you will need only $100 as the initial capital to open the trade.
Why trade US Crude oil CFDs with Capital.com?
Advanced AI technology at its core: A Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative SmartFeed offers a range of materials to put him or her back on the right track. The neural network analyses in-app behaviour and recommends videos and articles to help polish your investment strategy. This will help you to refine your approach when you trade crude oil.
Trading on margin: Thanks to margin trading, Capital.com provides you with the opportunity to trade crude oil CFDs and other top-traded commodities, even with a limited amount of funds in your account.
Trading the difference: By trading crude oil CFDs, you don’t buy the underlying asset itself. You only speculate on the rise or fall of the WTI crude oil price. CFD trading is no different from traditional trading in terms of its associated strategies. A CFD trader can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives.
All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and make forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.
Focus on safety: Capital.com puts a special emphasis on safety. Licensed by the FCA and CySEC , it complies with all regulations and ensures that its clients’ data security comes first. The company allows clients to withdraw money 24/7 and keeps traders’ funds in segregated bank accounts.
Businesses invested in US Crude oil
Buying shares of crude oil exploration companies is another popular, albeit indirect way of trading WTI crude oil. In times when crude oil price is rising, investors in crude oil stocks can profit. A list of some of the key players in the crude oil market includes the following businesses:
The largest oil refiner in Asia. The company’s shares are traded on the Shanghai (SSE), Hong Kong (SEHK), New York (NYSE) and London Stock Exchange (LSE).
The world’s leading refiner with a capacity of processing around 6 million barrels a day. ExxonMobil’s shares are listed on the New York Stock Exchange (NYSE).
- Royal Dutch Shell
Shell operates more than 40,000 oil service stations worldwide. The company’s shares are listed on the London (LSE), Amsterdam (Euronext) and New York Stock Exchange (NYSE).
The company was the first to discover oil in the Middle East. BP’s shares are listed on the London (LSE), Frankfurt (FWB) and New York Stock Exchange (NYSE).
- Total SA
The company operates over 900 subsidiaries, that cover all areas of energy production. Total’s shares are listed on the Paris (CAC), Amsterdam (Euronext) and New York Stock Exchange (NYSE).
US Crude oil price history
In terms of historical price action, the WTI crude oil price has experienced some dramatic peaks and troughs during the past few decades.
The commodity’s record low of $1.17 occurred in February 1946. At the beginning of 1999, it was trading at around $12 per barrel. Then, over the next few years, the price steadily climbed until US crude oil hit its all-time high of $145.31 per barrel in July 2008.
However, during the second half of 2008, the commodity’s price fell dramatically to trade around $40 per barrel.
Since that time, the value of WTI crude oil has zigzagged back and forth, dropping lower than $20 and rising higher than $100 per barrel. In 2017, the price for US crude oil averaged at $50.84 per barrel. In 2018, this figure stood at $64.90, and in 2019 – at $57.05.
At the beginning of 2020, the price of WTI crude oil started falling sharply as the Covid-19 pandemic originated in China began to spread internationally, leading to a sharp decline in fuel demand.
On 10 March 2020, the commodity’s price shed over 30 per cent, dipping as low as $27.34 per barrel when the trading session began. Such a steep slip represented the biggest single drop since the start of the first Gulf war in 1991. The dramatic price plunge was triggered by a row between Russia and Saudi Arabia over oil output.
On 30 March, WTI crude oil fell below $20 for the first time in 18 years to trade at $19.85 per barrel.
In the case of WTI crude oil, supply and demand play a key role in price formation. The International Energy Agency (IEA) claims that global oil demand will be growing due to the increasing world population and energy consumption, as well as the growth of petrochemical, aviation and transportation industries.
So, what are some of the most common reasons behind the commodity’s drastic price fluctuations? The two main drivers are the following:
- Economic factors. For example, an economic slowdown, which limits industry and individuals’ demand for energy, as well as their spending capacity.
- Geopolitical factors. For example, war or political unrest in a sensitive part of the world can affect the work of oil producers in the area.
Additionally, OPEC increasing or cutting oil production can affect the commodity’s price – for example, when supplies are constrained, the WTI crude oil price is expected to rise, and vice versa.
Despite the fact that the oil market is global, crude oil has numerous regional grades. Every type slightly differs from the other in terms of sulphur content (sour vs. sweet) and viscosity (heavy vs. light).
All the major oil trading regions have defined benchmarks to monitor the prices of oil commodities, these include:
- WTI (USA)
- Brent Crude (Europe)
- Western Canadian Select (Canada)
- Dubai Crude (Middle East)
- OPEC Reference Basket
- Bonny Light (Nigeria)
- Tapis (Singapore)
- Urals (Russia)
Note! West Texas Intermediate (WTI) and Brent Crude are considered the world’s most important benchmarks.