Crude oil is the world economy’s primary energy source that makes it a very popular commodity to trade. A naturally occurring fossil fuel, it can be refined into various products like gasoline (petrol), diesel, lubricants, wax and other petrochemicals. It is highly demanded, traded in volume, and extremely liquid.
Two of the major classifications for crude oil are US Oil, commonly referred to as West Texas Intermediate (WTI) and UK Oil, or Brent Blend. These are both characterized as being “light” and “sweet” crude oils, meaning they have a low density (making it easier to refine and transport) and lower sulphur content (which results in less impurities, making it cheaper to refine). Therefore, they tend to be more expensive than their “heavy” or “sour” counterparts as they are closer to the desired finished products noted above. Brent crude is the world’s benchmark for oil with almost two thirds of oil contracts traded being Brent oil. WTI is America’s benchmark oil, it is a slightly sweeter and lighter oil compared to Brent.
Oil prices are significantly influenced by the balance of supply and demand since it is so heavily consumed on a daily basis. Terms frequently mentioned when referencing this supply vs. demand relationship in oil are “production”, “supply”, “demand” and “oil inventories”. This basically boils down to two major consortiums: Organization of Petroleum Exporting Countries (OPEC) and Organization of Economic Cooperation and Development (OECD) – OPEC is the group responsible for producing around 40% of the world’s oil, while OECD is accountable for just over 50% of the world’s demand for oil. If production levels exceed consumption demand, then inventories are said to “build” whereby the excess supply can be stored and vice versa. Traders often look to gauge the level of consumer demand by looking at the relative strength or weakness in global economies via monitoring GDP, retail sales, consumer spending, etc. and then seeing how this stacks up to projected inventories. Sentiment in the financial markets also tends to play a major role in the price of oil.
Another peculiarity that marks the energy sector and prices on energy products is high volatility that results from the world geopolitical, environmental and economic events. Global economic growth significantly influences on the factor of supply and demand on energy products. During the period of economic prosperity, energy demand is growing, while in periods of economic stagnation there is a decrease in consumption of energy products.
In addition to economic changes, extreme weather conditions can have a huge impact on energy products, leading to disruptions in the supply of crude oil, natural gas or fuel oil. In return, these circumstances may reduce or increase the demand for many consumer services related to energy sector. In addition, political instability in countries that possess some of the largest crude oil fields in the world has a great impact on world energy prices.
Crude oil is traded 24 hours a day, five days in a week on a global market and prices on this product tend to make big swings. This makes it the ideal tool for day traders who choose CFDs on a crude oil, as the easiest way to trade this product.
Pylon FX offers to its customers possibility to trade WTI Oil on MT4 platform.
|WTI Oil||US OIL against USD|