How to trade crude oil

What is crude oil?

Crude oil is the world’s most traded commodity and a highly liquid asset class, available through spot trading as well as derivatives like futures and options. Formed from the remains of ancient organisms, crude oil is extracted from deep underground and ranges in colour from yellow to black. It is refined into petroleum products such as gasoline, heating oil, kerosene, and lubricants.

The United States is the largest producer of crude oil, followed by Russia, Saudi Arabia, and Canada. As of December 2023, US crude oil production averaged 13.3 million barrels per day.

What are the different types of crude oil?

There are three primary benchmarks of crude oil – US crude oil, Brent crude oil and Dubai crude oil – you can distinguish them by their geographical origin, sulphur content and oil density.

What are the benefits and drawbacks of trading crude oil?

Here are some of the benefits and drawbacks of trading crude oil:

Benefits of trading crude oil

• High liquidity – crude oil is traded in high volume, making it easy to enter and exit positions without causing significant price changes. This leads to smoother transactions and relatively low risk of slippage.
• Established market – crude oil has been traded since the late-1970s/early-1980s, providing extensive historical data and current analysis that traders can use to make informed decisions and backtest strategies.
• Hedging opportunities – Crude oil often retains its value when inflation rises. Traders may use it as a hedge against risks such as currency depreciation or stock market volatility.
• Trading platforms – Crude oil is available on many online trading platforms via CFDs.
• Price differentials – the price of US crude oil and Brent crude oil can often be significant. Traders could opt for an arbitrage strategy, trading the spread between crude oils to potentially profit from price differences.

Drawbacks of trading crude oil

• Price volatility – US crude oil prices can be highly volatile due to factors like geopolitical tensions and economic shifts. This increases traders’ exposure to both gains and losses.
• Complex market factors – US crude oil price movements may be especially difficult to anticipate due to unpredictable price drivers such as OPEC (Organisation of the Petroleum Exporting Countries) policies and macroeconomic conditions.
• Environmental concerns – Growing focus on renewable energy and environmental sustainability may reduce long-term demand for crude oil. Traders could face decreased opportunities as the market adjusts to changing energy preferences.
• Currency exchange risk – Non-US traders are exposed to currency fluctuations since US crude oil is priced in US dollars. Changes in exchange rates can affect the actual returns when profits are converted back to the trader's local currency.

What is US crude oil’s price history?

US crude oil’s price history is marked by periods of high volatility correlating with geopolitical events, supply disruptions, technological advancements and global economic shifts.

Commercial crude oil production dates back to the mid-19th century when Colonel Edwin Drake drilled the first commercial oil in Pennsylvania, United States.

The rise of industrialisation and the automobile industry drove demand in the early 20th century, and oil futures markets emerged in the 1980s, allowing traders to speculate on price movements and hedge against risks.

US crude oil prices saw a major uptrend during the OPEC oil embargo in the 1970s, which led to widespread supply shortages and higher prices. The Gulf War in 1990-1991 also caused crude oil prices to rise significantly.

Fast-forward to the early 2000s and rising demand from emerging economies and geopolitical tensions in oil-producing regions caused prices to climb. In July 2008, crude oil reached an all-time high of over $147.27 per barrel before the financial crisis caused a decline. In the following years, technological advancements – like the shale revolution in the United States – brought an influx of new supply, causing prices to plummet again in 2014–2016.

The Covid-19 pandemic in 2020 led to an unprecedented drop in demand, briefly pushing US crude oil prices into negative territory for the first time ever, highlighting the commodity’s susceptibility to market shocks.

In 2021 – as global economies reopened – US crude oil prices per barrel rose by around 55% more than 2020. This upward trend continued into 2022, with prices driven high by increased demand and geopolitical tensions, particularly the conflict in Eastern Europe.

Despite fluctuations – influenced by weakened demand outlooks and geopolitical tensions – oil prices have remained relatively stable in 2024.

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What factors might affect the crude oil live price?

US crude oil’s price can be influenced by a number of key fundamental events. Here are a few of the main factors that traders might watch out for.

Global politics – geopolitical tensions, particularly those in key oil-producing regions such as Russia and the Middle East – can impact US crude oil prices. If political instability impacts production, crude oil prices could rise. Conversely, peaceful resolutions or increased cooperation between oil producers may stabilise or even lower prices.

Supply chain and production – OPEC plays a crucial role in controlling oil supply, and its production decisions can significantly influence US crude oil prices. OPEC might reduce production to curb oversupply, which could influence an increase in US crude oil prices due to perceived scarcity. Conversely, advances in extraction technology – such as shale oil production – could increase supply and potentially lower US crude oil prices.

Environmental and regulatory factors – the shift towards cleaner energies has led to stricter regulations on crude oil production and consumption. Environmental policies aimed at reducing carbon emissions can restrict production, potentially influencing a rise in US crude oil prices. Conversely, demand for renewable energy sources could gradually diminish demand for crude oil, causing long-term downward pressure on prices.

Technology – technological advancements such as fracking and horizontal drilling have significantly increased US crude oil production, which can put downward pressure on prices. However, if technology fails to keep pace or becomes costly, it could reduce supply and influence US crude oil prices to rise. Monitor these developments closely for shifts in technology that might impact crude oil availability and pricing. Historical price correlations – US crude oil is priced in US dollars. When the dollar weakens, crude oil becomes cheaper for international buyers, potentially boosting demand and driving prices higher. Conversely, a strong dollar can dampen global demand, leading to price declines.

Historical price correlations – US crude oil is priced in US dollars. When the dollar weakens, crude oil becomes cheaper for international buyers, potentially boosting demand and driving prices higher. Conversely, a strong dollar can dampen global demand, leading to price declines.

What are the crude oil trading hours?

Crude oil is traded on different exchanges, each with their own trading hours.

• US crude oil is traded on CME Globex. Its trading hours are Sunday to Friday from 11:00pm to 10:00pm UTC the following day – with a one hour break each day beginning at 10:00pm UTC.*
• Brent crude oil is traded on the Intercontinental Exchange (ICE). Its trading hours are Sunday 11:00pm to Monday 11:00pm UTC, then Monday to Friday from 1:00am to 11:00pm UTC the following day – with a two hour break each day beginning at 11:00pm UTC.* Pre-market trading hours are Sunday at 10:00pm UTC and Monday to Friday at 12:45am UTC.
• Dubai crude oil is primarily traded through physical contracts rather than derivatives.

If you choose to trade CFDs, you can follow the US crude oil performance live in US dollars with our comprehensive US crude oil price chart.

Monitoring the commodity’s activity can help you to keep an eye out for any key fundamental or technical events that may affect short-term movements in its value.

*Trading hours may differ depending on national holidays.

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How to trade crude oil

US crude oil is a commodity that can be traded on spot markets or through derivatives, financial products that derive their value from the underlying asset’s price.

For physical contracts, traders face significant costs and logistical challenges, such as storage fees and delivery obligations, which can create financial strain. To avoid these complications, many traders use derivatives like CFDs or futures.

Contracts for difference, or CFDs, allow traders to speculate on the price of US crude oil without owning the asset. You can go long (bet on price increases) or short (bet on price decreases), and leverage enables larger positions with smaller upfront capital. However, leverage also amplifies potential losses, making CFD trading risky.

Learn more about trading commodities with Capital.com in our comprehensive guide to commodity trading.

Aside from CFDs, traders can use other instruments like futures, options, ETFs, and mutual funds to gain exposure to crude oil prices. These alternatives offer different risk profiles and suit various investment strategies.

Lastly, many traders also consider stocks of companies in the crude oil industry (eg, ExxonMobil, BP, Chevron), which tend to correlate positively with crude oil prices.

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